Tuesday, February 24, 2009

Morning Update/ Market Thread 2/24

Good Morning,

Futures are up a little this morning with the overnight action looking similar to yesterday’s overnight session... up slowly through the evening and then sliding by the open.

After the close yesterday JPMorgan slashed their dividend to just a nickel a share, and their share price actually shot up a dollar on the move? Why would that happen? I’ll tell you why, because it was the responsible thing to do. The market would gladly reward responsibility.

Don’t get me wrong, JPM is the center of the toxic debt wasteland and if they were forced to mark to market today they would be dead so many times over that you don’t have enough fingers and toes to count them all!

That’s why I’m thinking this “stress test” is going to wind up being a little like 3rd grade show and tell. A little bit of embellishment will have to occur to keep the game going. All right, not just a little, a lot.

Isn’t asking the bankers to do the right thing a little bit like asking a chicken to break its own neck? NOT GOING TO HAPPEN. Guess who is running the show? Bankers… still.

So am I going to fully believe the results of the “stress test?” Let’s just say that I’m a skeptic.

The ICSC store sales data came in up in the third week of February, but the rise was not as much as the previous week. From Econoday:
Retail sales picked up in the Feb. 21 week, rising 0.6 percent to bring the year-on-year rate to -0.8 percent, the best rate since the beginning of the year. The report said consumer spending is less weak than recent months.
The Redbook (chain store sales) for the third week of February dropped by 1.5%. The prior week dropped 1.4%.

The Case-Schiller Home Price Index came out showing further drops and acceleration in home price declines; THE LARGEST DROPS IN HISTORY:
House-price contraction is at the center of the great financial meltdown that, despite all the efforts so far, is still underway. Case-Shiller shows that contraction is steady and severe, at -2.3 percent for the Composite-10 index in December and at -2.5 percent for the Composite-20. Year-on-year declines are accelerating, at -19.2 percent for the 10 index and at -18.5 percent for the 20 index. Rates of decline are steepest in the West, led by a 34 percent year-on-year decline in Phoenix. Reports on existing and new home sales, released this Wednesday and Thursday, will offer price data for January.
Consumer Confidence comes out at 10 Eastern and Bernanke speaks at 11:00.

From a technical perspective, we could bounce any time. I believe any bounce would be wave 4 within wave 5 down, thus there would be a 5th wave down of 5 down to go that should, conceivably take us to new lows. Of course we could still not be done with wave 3 down, we’ll have to see what today’s action brings.

I do think it’s time to be taking profits home if you have them and it’s a very dangerous time to be putting money at risk either short or long. I’ve been lightening up and expect to be mostly neutral by sometime today. I would not be surprised to see us at least move lower initially to bust the SPX intraday low, maybe with a move down to the 734 pivot and then a reversal. Tough one to call, of course, being so oversold we could bounce at any time or we could just head on down. The technicals are favoring a bounce, the McClelland oscillator is at one of the worst readings ever and all the oscillators are deeply oversold.

If we do head higher, the next two higher pivot points are 768, and 789, with 734 beneath us and 741 is the November pin low.

Here’s a chart showing the past 20 days on the SPX:

Have a great day,