Been a bit of a busy night for our S&P futures down 2.5% out of the gate, then down only 1% after Europe opened up and now back down 2.5%. It is unavoidable, without any coordinated intervention, we are going down, we will make a new closing low this week and we could finally see a little panic. Tape bombs will be continually lobbed out of Europe and most of which we won’t at first understand…..Obama has his Jobs speech Thursday night which will most certainly be a disappointment, and I would be surprised if the Fed’s indecision on methods of stimulus changed publicly before then, especially now that they have extended their Sept 20 FOMC meeting to 2 days.
As I write at 9am, the DAX is now down 1.5% on the day, and 3% from the high made shortly after the open, this horrible action to say the least and the index is now down almost 11% month to date…..Something has to give there, and likely to see some central bank action there prior to here. I worry that they will be half measures like restricting short sells…..I would view that as very negative and would look to short any rally based on that sort of restriction.
G0ld is off 1.5% from all time highs after the announcement that the Swiss Central bank will impose a ceiling for the franc vs the euro. With the Euro as weak as it has been in the last few days, Gold moving around in dramatic fashion and the DAX moving around at what feels like 3-5% increments, things feel like they are about to get much worse before they get better…..
Back over here, bank stocks are obviously the focus and most are quickly approaching the lows they made 2 weeks ag0…how they react at those lows will be very telling….I also want to keep an eye on stocks that are thought to be defensive, pharma names and high dividend payers, telco and utilities etc….if these names start to give up with some of the more speculative names;; Chinese internet, our our new issue internet and then some high valuation consumer names like CMG, WYNN, HANS PCLN and LULU then watch out below…..
As for this morning, I think you have to be careful just walking in and shorting the open, the healthiest thing to do would be to access the damage on the open and then wait for a rally, more often than not there will be one short covering rally on a day like today, if in fact we were to close on the lows…..You don’t want be the guy that sells the low on a day where we get some sort of surprise fed or European central bank action……shorts will cover all day.
As I came in short, I have my list ready of things that I want to buy if it gets overdone and shorts that I want to continue to lean on and sell on rallies. You do not want to be too early in either task, but inevitably you will, so you have to have conviction on the individual stories and have a market call about the near term direction and the intermediate term. Near term I am obviously bearish, but intermediate I am resigned to the fact that we will get very fierce snap back rallies like the one we had after Bernanke’s Jackson Hole speech. Those are very trade-able and if you can be nimble and define your risk they can make your year…..Oh and you have to be more right than wrong!
We will continue to see cross-currents, UTX this morning reiterated their 2011 revenue and earnings guidance, but the stock is still down 3%…..if markets stop caring about news like that either tells me what we already know that correlation is at record highs and/or it just doesn’t believe corporate managements, which would be far worse.
So today’s game plan is trim some shorts if we get really messy on the downside and look to put things back out on a rally. Don’t be stubborn with longs that have reached stops, always make a sale at pre-determined levels, even if just a portion of the position, live to fight another day. This will only help you wade back in the water when the time is right.