Monday, September 29, 2008

09.29.08 - Heading for a Retest

Weakness, portended by the Sunday futures, has quickly evolved into a free fall at the open:


7:00AM PST: QQQQ -4.26%; DIA -2.42%; EFA -5.97%; SPY -3.16%; TEDSPD 3.48%; VIX 39.8
Breaking News: Massive Coordinated Central Bank Injection
Announced Among Nine Global Banks

Do you think some of today's news might have been timed to coincide with agreement on the TARP? Too much news for one weekend, must have been quite a bit of action on hold last week. And so it goes...

7:45AM PST: CNBC is reporting that as Alt-A loans begin to hit the banks, the "rescue" plan will have to grow 10x. Meanwhile, oil is down over 6%.

10:45AM PST: Who would have thought a "1987" would come of a congressional vote? Alright... but Nas 100 is down a flippin 8%. Hold on tight.

11:20AM PST: I'd guess we've seen the lows for the day (geez, let's hope so). We came back up, saw a huge volume spike, back down, tested and up again (little w). VIX hit 45-plus levels and is pulling back a tad. This is an exceptionally high level even an absolute basis (forget it's stretch). Ted Spread is also coming down a touch from earlier highs. What a joke.

Intermediate term, I'll easily concede this could get worse. The economy is only going to deteriorate ahead irrespective of what the market or congress does. This perspective blows away any "fair value" analyses I've done earlier in the year. No bottom picking in this crazy environment. So, does this open the door to the Fed to lower rates on top of their money injections...?

Meanwhile we are getting zero leadership from our president or presidential candidates. What a missed opportunity on both sides.

12:20PM PST: Q's are still breaking down.

12:30PM PST: Ouch... welcome back to 2004. VIX @ 48+. Incrementally adding exposure into the close for a trade in this camp.

12:50PM PST: Monthly view --


CLOSE: Time to hit the water. I would have liked to have seen much stronger volume today. Hate to be a terrible cynic, but I've got to wonder if the Dems didn't know that vote was going to fail... brilliant strategically if they did. Idiotic, but brilliant in a Machiavellian sense. In any case, I think my new party affiliation will be 'A' for Anti-Incumbent. SPY RSI[2] = 5.53.

COMMENT: It's difficult (for the non-cynic in me) to understand how the politicians can fail to see the linkage between "main street" and "wall street". Even if they don't comprehend the nightmare economic multiplier scenarios outlined in past posts, clearly they know that main street owns wall street through 401-Ks and direct personal savings, and that measure of wealth has now declined in one day more than the sum total of the requested funding due largely to their inaction. Only difference being that loss is now a historical fact, whereas with the plan there was upside opportunity for all.

Reading:

o Vix & More - Top Ten Vix Events
o Macroblog - The False Choice

Measuring the Bear:

o S&P 500 High October 11, 2007 was 1,579
o Today's Close was 1,106 and change
o Point Difference -473 points
o Percentage Loss -29.96%
o Percent Increase Required to Reach prior Highs +42.77%

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