It’s Really All About Jobs and Housing, The Obama People May Figure This Out a Day Late….Sept 8th not 7th

by Dan September 2, 2011 6:32 am • Commentary

This morning’s 8:30am release of the the much anticipated jobs data including the unemployment rate should help tip the scales as we move closer to the Sept. 20 FOMC meeting and the market’s expectations for added stimulus.  Make no mistake about it, Bernanke did not go before the KC Fed Symposium last Friday and give one of the most scrutinized  speeches of his career without a little peek of the GDP reading released that morning and some of the data this week…..With GDP not much worse than expectations and the ISM number yesterday, maybe Bernanke has it right not to overreact as the recovery might have just hit a soft patch this summer… but the problems got amplified by Washington’s dysfunction and the confusion caused by the debt ceiling debate.  Well, the Aug  jobs data is likely to be a reflection of that and expectations have been coming down; GS just cut their payroll number is half yesterday to 25k from 50k vs the consensus of 68k….Expectations for this morning’s data are low, and unless we get a disastrous number (some economists have suggested that a negative number is possible looking at some of the other Aug data like consumer confidence) the markets are likely to take it in stride…..

But that leads us to a glass half full or half empty? I might have thought the same yesterday with the ISM reading, the market immediately spiked on what was initially perceived to be a better than expected reading, only to spend the rest of the day giving back those gains and closing on the lows……So if jobs data is better than lowered expectations, or are in-line and we sell off, then we could just be giving back a little of the end of the month window dressing, or we are really screwed and back to the markets having to dictate the course of stimulus by extreme volatility and a retest of the Aug lows.  As readers of the space know, I wanted to believe that we could get a little rally going and retest 1250 in the SPX, while this is not off the table in the near-term, I started shorting the market on Wednesday afternoon, adding yesterday, while reducing long exposure and turning long stock into long premium to define my risk.

With the S&P futures down close to 1% as I write and Europe getting smacked (DAX down almost 3%) it feels like “deja vu all over again,” I mean it feels like early August again……Gold only a couple % from the all time highs, and the VIX just won’t break 30 on the downside…..I have a sneaking suspicion that I know what is going to happen here….Feels like a another volatility spike coming…..

My little move (albeit a cautious one) in and in most ways out of the banks is turning out to be short lived as it seems that we wake today to whole bunch of negative news in the sector….Feds asking BofA for contingency plans if things turn sour again (again, really??), um one word Buffett; GS has their usual PR issues with former really rich employees and all of the big banks may be sued by the feds over their practices during the housing bubble of selling crappy mortgage securities.  Put all this together and you likely see new lows in the large names, and Mr. Buffet’s sweetheart deal in BAC, with the fabulous short-term paper profits may go much the way like his 2008 investment in GS.  I think the only way for traders to play this space is the way I did last week, trade the common from short term oversold condition, and then define your risk with long premium once the easy money has been made….this space is not out of the woods yet!

So now I sit and wait, I know what I want to be long if the market bottoms, but I have a good sense that we will get another test in the near term of the August lows…..I am properly hedged up against longs and I am clearly leaning short, partially with a defined premium bet and through leveraged etfs.

But again, it’s all about Jobs and Housing, if those 2 things can’t turn then the consumer is going to continue its malaise at a time where he can’t really borrow and should be de-leveraging anyway… is a little bit of a death spiral that I think most onlookers feel that Obama, in his address to congress next week, doesn’t have a prayer in solving. And both parties are not attached at the hip in goals for solutions prior to the Nov 2012 election.  Obama could be screwed, and so could the average American. Bernanke practically said it Friday, there is only so much the Fed can do, and Washington, ex-FOMC is gonna have to step up.  I am of the belief that the markets, unfortunately for you 401k, are going to have to force QE3 and yesterday and today could just be the start…..

Good luck today, and remember, don’t get stubborn, if the price action tells me that I am wrong on my short bias, than I will quickly cover some and live to fight another day……




Original Post Sept 1, 2011: Quick Market Touch

The SPX has rallied a little more than 7% off of Friday mornings lows, capping the worst month in the index since May 2010, which included the “flash crash”.  As I said in this space the other day, U.S. equities have turned out to be a little something of a flight to quality when you consider the damage done to the major European indices (DAX was down ~19% in Aug. vs the SPX down ~6%)

Window dressing was most likely the name of the game in the last few days of the month, as the Fed and the markets expectations for stimulus will drive the market action again this month…..With Obama’s stimulus speech next week, a German Ruling regarding debt sovereign purchases, the Sept 29th vote on EFSF and in the middle the growing anticipation of the now 2 day FOMC meeting starting Sept 20th should provide a great deal of Volatility in the month ahead.  

With the SPX close of about 1220 yesterday,  I couldn’t help myself to wade back in the market from the short side (read here), while also buying some SDS common for a short term bearish trade and also some protection against a few long positions…..I will leave on some Sept Call Spreads in the banks, but any failure in that sector, especially given the Buffett/BAC news last week will signal to me that we will have rough roads ahead.

Yesterday as the we gapped open 1% taking most sectors with it, I saw some underlying weakness in some tech names in the SOX and more importantly AAPL…..The market doesn’t really need AAPL to outperform with the stock up 19% ytd, but it would be a nice show of support……

ISM today at 10am will be important, not that the number is that important, expectations are already very low, but the reaction to the bad number on the first day of the month could be the tell for the next few days……If we get an inline to worse than expected number and the market sells off with such such low expectations than we are clearly in a glass half full environment and would expect further weakness and the rally of the last few days was purely just window dressing…..If we get an inline to better number and the market rips than it will be a clear indication that a test of 1250 is in the cards and the market getting back to unchanged on the year.  Now all of that may sound kind of obvious, but it is important as we consider the plethora of potential catalysts in the coming weeks and what the final month of Q3 means for corporate earnings.

Brazil took the surprising step overnight cutting overnight lending interest rates by a half a point to 12%….this came as a huge surprise to many economists who question the countries ability to manage inflation in an economy that has been grappling with the potential for a soft landing after a massive expansion…..It is interesting to note that while the Bovespa is one of the worst performing emerging market indexes year to date down almost 19%, it was one of the better performing ones only down about 4% in the month of August…..Maybe they are ahead of the curve?

The Euro is down again at about 1.426 almost in the middle of that channel that I identified on Monday as an interesting trading range and a move towards 1.40 could clearly mean volatility for European equities in the coming weeks.

Back to the US, stocks like WYNN, AMZN and CMG continue to confound me with 26%, 22% and 16% rallies respectively off of the Aug 9th lows.  I want to lay these names back out, will wait for one last move higher…..maybe on a little blow off top…..

So I am letting some longs run, but with an itchy trigger finger and I am legging into what are now low premium short bets…..I want to play for a move back to 1170 in the short run and possibly 1121 in the next few weeks…..But I am not abandoning Longs with catalyts like CSCO and Sprint, or deeply oversold names like the banks, but in all instances I want to define my risk, because make no mistake about it, volatility is here to stay for a bit.

Aug 31st, 2011: This Little Rally Off the Bottom is Like Putting Lipstick on a Pig

All appears to be good with the world again…..Asia was generally up in sympathy with the Fed’s outlook, Europe is up soundly up across the board on German Chancellor Merkel’s ability to quell the revolt within her own party that was threatening to thwart the bailout of the Eurozone. And what could be a little effort by beleaguered mutual funds to put a little lipstick on a pig and do a little window dressing on a disastrous month for equities (SPX down about 6% mtd).

As I write at 9am, the S&P500 futures are up about 1%, Dollar is unched vs the Euro, yield on the 10 year practically unchanged, as is crude and Gold (after a monster day yesterday that looks like poised to retake last weeks blow-off highs).

The news clearly seems a bit better, but that will be tested later this morning with readings from Chicago Purchasing Managers at 9:45 and Factory orders at 10am.  All eyes will be on ISM tomorrow as this number for last month caused a good bit of downward volatility. followed by jobs data on Friday.

As for the rest of this week……the same week that I am hoping to take a couple days off (fingers crossed), we could see a continuation of the window dressing as mutual funds could see some inflows for the start of the month after the probably near record outflows they experienced this past month……either way I want to short this market a little before the SPX attempts the 1250 level……I rolled out of some common stock positions into call spreads with some of the gains and now in my most of my longs I am just risking a portion of my recent profits….I think this is a good habit to get into, especially in a market as volatile as this…..

Even with the VIX above 30 I like owning premium here as I believe we are likely to see another retest of the 1121 closing low in the SPX as our fancy European friends get back from their extended holidays…..

I went to let some longs run, the banks stalled yesterday, but some showed a little signs of life late in the day…..if these stocks could get going today we could be off the races…..I want to be careful with BAC here, especially after the monster rally off of the bottom…..the news likely to get worse before it gets better in my opinion and the way the stock is moving around we could see the stock back at $7 just as easily as $9….that is why I did stock replacement and I still own my BAC black swan structure(read here).

So the gist of it is…..if you caught this rally off of the bottom, don’t be afraid to take some profits if you are a trader……If you are investor than it may make some sense to ride it a bit and see if we can get through 1250 as the market looks forward to the potential for additional Fed stimulus at their next meeting Sept 20th…..But I am surely gonna take a shot at shorting this market before the week is out……