Thursday, January 8, 2009

Morning Update 1/8/2009

Good Morning,

Futures are lower again this morning, the DOW was down by more than 100 points, but is coming back just a little now, while the S&P took a run at 890 and is currently at 898 on the /ES, down about 8 points. Those are important points because it managed to break strong support at 900 overnight. The 890 level is now very important, it’s where the 50dma and the 61.8% retrace line of the latest advance coincide.

The weekly initial unemployment claims number came down by 24,000 to 467,000 for last week, BUT the continuing claims, the total number of people receiving benefits, jumped to 4.6 million, the highest level since 1982. That number is also the number that is less manipulated. Tomorrow’s monthly employment report is the most manipulated by seasonal adjustments, the BLS’s death/birth model and so on. Be careful assuming that the report will be bad, I think that’s already assumed after ADP’s report yesterday.

Wal-mart, the GAP, and Macy’s all warned about their sales over the holiday season, and Wal-mart said that they are going to miss their earnings estimate. That is a major blow to the retail space, most people were assuming that Wal-Mart would lead. Yet another example of how the stock market is not correctly priced for the true underlying economic conditions.

The Bank of England slashed their interest rates by another .5%, and took their bank rate down to 1.5%. Now you would think that would weaken the pound and make the dollar stronger, but in fact, the dollar is down pretty substantially this morning and gold is up.

Bonds are generally up in price/down in yield this morning, TLT is mostly flat with its close yesterday, however.

Financials seem to be a key to the market still. The XLF’s failure to break the 50dma was very significant. This morning many of the financials are down and the XLF is down further as well.

Today’s a very important day overall. We have now gone down to the 61.8% retrace level, close to the 50dma, and have so far bounced. We are oversold on the short term oscillators and that is providing a little support here. It seems to me that this is pretty much do or die in this area and I think using the 50dma as a short or long entry spot is a good idea, as long as you exit on a break that goes against you. Personally, I don’t like the long side for anything more than a possible scalp as the daily stochastic just issued a sell signal yesterday and thus we probably have more sell off coming in the days ahead. But again, we must get through the 50dma first which right now is at 889 as you can see in the SPX chart below:

Keep an eye on the VIX to see if that is a false breakout or if it's real. If it continues higher today, there's a big clue for us.

That’s about all I have, except another caution not to buy the media hype and B.S., I already see that CNN is running with a headline that says jobless claims fall sharply! I love the bias, the fact is that the media and most people are biased to be positive, and at the same time people are complaining that the media is being too negative about the economy. NO, they are not, they are still far too positive; people who are realistic about the economy do not get a commensurate amount of air time. Remember who owns the media and what their interests are!

Best to your day,