Market Discussion

[hyhl]

I think "carry trade" is the biggest problem.

Any comments   

options exp today

So far down volume for the SPY is unlikely to be greater than it was on Sept 18th, even considering today is options expiration.  Seems a bit fast to go back into full blown correction mode.  Boone Pickens says $90 oil shouldnt hurt that much, and that seems to be the biggest reason for the down move today.

[tokyopua]

Any comments   

options exp today

So far down volume for the SPY is unlikely to be greater than it was on Sept 18th, even considering today is options expiration.  Seems a bit fast to go back into full blown correction mode.  Boone Pickens says $90 oil shouldnt hurt that much, and that seems to be the biggest reason for the down move today.

Tokyo, I'm eager to see whether IBD says now in correction mode or not.  As of yesterdays action their current outlook was still; "market in confirmed rally" with distibution days counted in recent weeks; "3 for Nasdaq and S&P 500, 2 for DOW, 1 for NYSE."

Still in confirmed rally, not enough distribution days to qualify for correction yet.

-----------------------------------------------

Stock Market Slides On Latest Wave Of Bad Earnings
BY MARIE BEERENS

INVESTOR'S BUSINESS DAILY

Posted 10/19/2007

Blue chips blackened the stock market Friday.

On the 20th anniversary of the Black Monday market crash, heavy equipment maker Caterpillar (CAT) lowered its 2007 outlook based on slow U.S. economic growth.

3M, a diversified industrial firm, said it has to lower prices on some products due to competitive pressures.


Both Dow components weighed heavily on the industrial average, dragging down the rest of the market. It was the market's worst decline since Aug. 28, the day before the Nasdaq followed through on the current uptrend.

The Nasdaq, which has been the leading index since the follow-through, plunged 2.6%. The Dow and the S&P 500 also tumbled 2.6%. The NYSE was right on their heels, down 2.5%.

Smaller stocks took the biggest hit, with the S&P 600 sliding 3%.

Trading volume swelled, stoked in part by the monthly options expiration. That gave the market its second distribution day of the week, and four total for the Nasdaq and S&P 500.

Investors took to the safe haven of Treasuries. The 10-year yield slid 10 basis points to 4.40%, the lowest since mid-September.

With recession fears rising, Wall Street is convinced the Fed will cut rates by a quarter-point Oct. 31. Traders had the odds at 32% at the start of last week.

The IBD 100 index, which tracks top-tier growth stocks, shed 3.4% on the day.

Remember, when the market pulls back, leading growth stocks will fall more than the general indexes.

That's why investors should exercise caution. With the market jittery every time an earnings headline hits the wires, safeguarding some of your gains may not be a bad idea.

Pay attention to which stocks are holding up well vs. those that are falling in heavy trade. Trim your laggards and focus on your leaders. Always cut a loss if a stock falls 7% to 8% below your initial purchase price.

Despite the broad sell-off, several leaders performed well Friday.

Intuitive Surgical (ISRG) gapped up after beating Q3 earnings estimates by 20%. The maker of advanced surgical systems soared 5%, hitting a record high on six times its usual turnover.

DealerTrack (TRAK) jumped 4%, hitting an all-time high on eight times the regular volume. The developer of software to link car dealers with financial institutions priced an offering of 4.5 million shares at 46.40 per share.

On the downside, energy firms slumped as the price of crude retreated from record highs.

Schlumberger (SLB) tumbled 11%, plunging below its 50-day moving average on 4 1/2 times normal trade. The provider of oil and gas field services topped Q3 earnings estimates. But its CEO said its North America pricing power is set for further declines.

[tokyopua]

Technically it closed just above the high from early July

It also closed the gap that was open on the chart you showed.

[David Randolph]

Let me just drop a few lines about the general market and the US economy.

We now have a global economy and the best prepared economy in the World for this environment is, you guessed it, the United States:

GENEVA (AP) -- The United States has regained its status as the world's most competitive economy thanks to strong innovation and excellent universities, according to a survey released Wednesday by the World Economic Forum.

Nearly half of Americans think the economy is in a recession (which is a powerful contrarian indicator).

Despite all the housing, credit troubles and the stock market fall in August, the US economy grew 3.9% in the third quarter.

And my thesis was confirmed:

«"Exports generated 45 percent of this quarter's GDP growth.  Last year we had a record $1.4 trillion in exports - that is up 12.7 percent (over 2005).  If we continue on our current path of opening up overseas markets and expanding exports this year should be even better with a very strong growth rate."»

«"This is not a zero-sum game.  We do well when our trading partners do well," he explained.  "So our exports increase when other economies grow, because when other economies grow, that means their demand for all goods - some of which are domestic to them but some of which come from us - also grow.  And so a significant fraction of the export growth we have seen has been a result of growing economies around the world and that is a good sign." »

On Wednesday the FED cut interest rates by 25 bp as we all know.

And yet, yesterday, the SPY plunged 2.7%. This got me worried, because, with so many good news, how come the market goes down?

I think the market suffered from a "what next" phenomenon. With all the good news out, the next thing must be bad news ... and a CitiGroup downgrade was the catalyst for the sell off in the general market:

«Citigroup shares, which finished 7 percent lower, tumbled after a CIBC World Markets analyst lowered the rating of the company's stock and warned that Citigroup may have to cut its dividend in order to raise $30 billion in capital. Citigroup declined to comment on the matter.»

My thinking on this issue is that the housing and credit problems are a thing of the past, and strong economic growth is the future. Sure, banks and builders will feel some more pain, but most people that would default on their homes payment already did that and most people that would stop paying their credit cards bills already did that too.

The average US consumer won't feel it for a long time, but the US economy is growing strongly on exports due to its competitiveness and a weaker US dollar. This is just what the World needed, a re balance. Less growth in consumption in the US and more exports. Less exports in the rest of the world and more internal demand. Don't forget the Chinese save more than half of their personal income

We have strong growth, low inflation and low interest rates. Moreover, the World market is much bigger than before, with the emergence of the BRIC countries as huge economies, where before little existed in economic terms.

This is a great economic environment to own stocks for the long term.

I believe the SPY is in a trading range but ultimately it will breakout to new all time highs.

[David Randolph]

GM's huge non-cash charge, $oil moving near $100 and the falling USD will probably make the SPY touch the base of its symmetrical triangle once again.

But, longer term, because the stock market's valuation is attractive, interest rates are low (not providing many alternative investments to stocks), economic growth is robust because of strong exports and business investment and also because most people feel pessimist and are holding cash, I believe the SPY will end up continuing its long term bull market, breaking out to new all time highs above $156.

Anyway, as you know, I've adopted a microeconomic approach and the stocks held in the Main Portfolio are good businesses that I expect to grow in good or bad economic times.

[BigSully1]

Looks like SPX is below an important support level now. Lets hope it can close back above 1490, or it could get really ugly.

[David Randolph]

Looks like SPX is below an important support level now. Lets hope it can close back above 1490, or it could get really ugly.

Nah, we're gonna have a late day rally.

Besides, the most important technical level now is the 200 days SMA, currently at $148.35 on the SPY. Just my opinion.

[David Randolph]

Nah, we're gonna have a late day rally.

I say this because when the big boys are accumulating it usually shows up first in the European futures markets (after-hours). Their buying orders, because the market is less liquid (especially in extended hours trading) are noticed here but not in the US, at least not yet.

But I can be wrong, just sharing a few tricks with you, just in case you wanna be a futures day trader (for God sake, no!).

Oops, I did it again! (sorry)

[BigSully1]

Looks like SPX is below an important support level now. Lets hope it can close back above 1490, or it could get really ugly.

Nah, we're gonna have a late day rally.

Besides, the most important technical level now is the 200 days SMA, currently at $148.35 on the SPY. Just my opinion.

Pretty much the same difference, isn't it? 1490 on SPX or 148.35 on the SPY?

[David Randolph]

Pretty much the same difference, isn't it? 1490 on SPX or 148.35 on the SPY?

Yeah, I guess so, sorry I focused on the following part of your comment:

Looks like SPX is below an important support level now. Lets hope it can close back above 1490, or it could get really ugly.

I use the SPY because of the candlesticks.

[David Randolph]

By the way, where's the 200 on the SPX? Perhaps we touched it.

We didn't touch SPY's, because the MM stands at $148.35 and the low of the day was $148.61. But trading isn't an exact science (it's more of a gamble, actually).

[BigSully1]

I show 1483.20 as the 200, so it actually it didn't quite touch it there either. I was thinking it was 1490.

[David Randolph]

I show 1483.20 as the 200, so it actually it didn't quite touch it there either. I was thinking it was 1490.

Ok, NOW we touched it! Not a lot of time for a comeback, probably tomorrow.

[BigSully1]

I can't imagine what would be a catalyst now. Ugly. Ugly.

[David Randolph]

I can't imagine what would be a catalyst now. Ugly. Ugly.

Indeed, brutal sell off for a close below the 200 days SMA "key" support level. I was wrong, and so were the DAX players, or else we'll get some news after hours which reverses sentiment or something.

Anyway, it's over now, I'm going to watch a football game. See ya