Market held captive by Government

The major indicies are crowding up to the trendline off the July lows and the market is definitely being held captive by a Government that requires credit be given to the "savior" of the financial system. I'm holding true to the belief that there will be a deal prior to the opening of Monday and stocks will surge off of the "Relief" to the liquidity situation. However, ultimately this rise will turn out to be the Bears opportunity to reload for the impending doom fall of terribly bad earnings to come.



For now the VIX is providing a nice PUT opportunity with a tight stop at the $36.72 Fib level.

LOW, HD, MAS, & the $$$$

I just love a comparrison chart for perspective......

Does it appear that Lowe's is slowly closing the gap downward?

Wow that Masco investment back in 1988 has reaaaaalllllllly paid off.......Is this the dog wagging the tail or the tail wagging the dog. To me they all have fleas....

Now here's the USD/EUR finding support ot a major Fib line. This looks like a nice cup with a handle. Could this mean Europe is a WHOLE lot weaker than the US in this Financial mess?

Things you can not see by only looking at daily charts

What you don't see about today's action if you are only looking at daily charts is the beginning of a bottoming process. These 20 day 30-min charts show that the "Fade" downtrend from the "Financial Bailout" was broken. Coincidentally the timing of this bull move immediately followed the ending of the Senate committee hearing starring Paulson & Bernanke. And as always Fibonacci lines are marking important resistance/support levels.

GDP growth and Cramer's Cyclical and Investing Chart

In Jim Cramer's Mad Money he references an economic cycle based on Gross Domestic Product and the Federal Reserve's positon on interest rates. It has been said through various other souces that the cycle typically runs on seven year intervals. However, Cramer does not put a timeframe on his chart, but simply puts forth the idea that the Market will react a certain way given cetain circumstances or conditions.

Currently the GDP report is due Thursday and it's consensus estimate is for GDP growth of 3.3%. So let's take a look at where we are and what we should be doing based on Cramer's playbook.

Yearly Chart:


Quarterly Chart:


It is plain to see that the cycle bottomed out in the last quarter of 2007 and GDP has actually risen in 2008. Yes I know, "We are in a recession". Well, not according to the governments data. Given, we may be in the financial crisis of a lifetime, but the data does not lie. Anyway, who cares? The question is how do we make money on what is going on?

Well according to Cramer's playbook if GDP is rising and between 3-4% we should have already bought "smokestack" stocks like DE, IR, CAT, MMM and begin selling financial, housing, retail, & auto stocks like BAC, WFC, LEN, TOL, PHM, CTX, WMT, TGT, F, GM. As GDP tops 4% we should be buying metals and minerals such as: NUE, AA, NEM. Since this was published in 2006 I wonder if he would add Gold stocks like GLD, AUY, & ABX? Oh, was that Monday's show?

The Fed shold be tightening rates based on the growth, but we all know that they are in no position to cut or raise rates based on current commodity price instability and the global financial crisis.

Bottom-line folks is that when this housing/financial mess is cleared according to the market there will be a HUGE upward rocket type swing. Perhaps now is the time to be looking at long leap calls on the majors SPY, DIA, QQQQ, & IWM.

Bank of Hawaii, Oil, & China

Bank of Hawaii has weathered the financial crisis extremely well and looks to be a solid buy. Picking up some long calls with a stop just below the 50 week moving average may pay off huge in the near future. The next three charts give a long term, intermediate, and short term look.




Crude was the story today, but be real careful getting long here as it has only retraced back to a longterm trendline and Fibonacci.

The China index sporting similar action to Crude and could very well be a bull trap. Shorting here or some short-term puts 3-6 months with a stop at the fib line may be the play.

ZION

ZION: 52.83 +7.61 (+16.83%) : ZIONS BANCORP - Yahoo! Finance
4:00pm 09/19/2008
$52.83

Low: $38.76
High: $107.21
Change:+7.61 +16.83%
Volume:14,189,097
Avg Volume: 6.18M
Shares Out: 107.57M
P/E: 16.16

This is an awesome example of how volatile days should be traded:

What if instead of anxiously/fevorishly trying to sell your calls on the Open spike you instead place Buy on Open Puts WAAAAAAYYYYYYYY Out of the money at "key" strike levels. For example: What price would a market PUT order to trigger at $105 strike been filled at the Open versus trying to clumsily pick a limit order to set in order to sell your calls? What about creating a Vertical Put Spread to trigger at certain levels?

No matter how you look at it the goal is to preserve the profits gained on your long held calls by the insane open. What difference does it make if you just get neutral with a corresponding PUT amount of contracts? Technically you would be even thus preserving the maximum profits of the gap open....

The issue is which order is easiest to make? The one you can place for practically nothing the night before or

1. the stab in the dark limt order that may not get filled at your wish price
2. or worse gets filled WAAAYYYYYY below the Open bid thus leaving major profits on the table
3. or the catastrophic not get filled at all as the bid and profits quickly disapate

Bottom line:

Regardless of the Call profits that were made; how much do you think a $105 strike PUT +ZNQMD would be worth if it did get filled at $0.05? By my math around $52 or for 10 contracts or $52,000. Well the close for +ZNQMD on 9/19/08 was $86.20 or $86,200.

BUY 10 +ZNQMD if ZION >= $105 $0.05 09/19/08 $17.49 = ($67.49)
SELL 10 +ZNQMD MOC Market on close $86.20 09/19/08 $17.49 =$86,182.51
Profit $86,115.02

To me that makes selling those calls later in the day a WHOLE lot easier.......

Market outlook

Next week I expect the market to absorb the huge gap up by tediously fading back. If support is found at the shoulder lines it will lend more credence to charts across the board setting up for an inverse H&S pattern that could send things back up the year highs. The QQQQ's is looking like easy money if this turns out to be the case.

US GOVT inc. - Great trade with 80% stake in AIG

In arguably the greatest insider trading deal in history....the US Goverment takes control of AIG.

No wonder they would not let any more shorts.......

Checkout this excellent post on Friday: http://quantifiableedges.blogspot.com/

I'll do another post later this weekend setting up for next week......

CNBC's take of the week.......

From Dylan Ratigan of CNBC

"An historic week on Wall Street mercifully comes to an end. Usually this column highlights next week’s most tradable events. And while investors will look to make money around Nike and RIMM earnings on Wednesday, and perhaps housing data on Thursday, the truth is these events, which normally would consume the collective interest of traders, will recede into an ever-changing backdrop that is the new financial landscape. The Government has changed the rules, nationalizing risk, and altering the natural balance between buyers and sellers in an effort to save the financial system. We are by no means out of the woods, and while the infusion of cash into the system will certainly assuage some investor concerns, no one should take this to mean the crisis is over. The capital markets have suffered an enormous trauma, and as with any injured body, the road to recovery will not be instantaneous. If you had been in a cave for the whole week, you might think nothing happened. After all, the Dow and S&P are virtually flat. But over that time, the financial landscape has been irrevocably altered. Lehman Brothers has failed; the Government’s bailout of AIG; Merrill’s merged with Bank of America. It has become a brave new world that will require even the most seasoned traders to take a step back before acting. But one thing is clear. An open market, even one where the rules seem to be changing on a daily basis, is a market in which you can make money. So let’s relax tomorrow, and come back next week and try to do just that. ."
-Dylan
If you have questions about The Final Trade or suggestions for Fast Money, please send an email to FastMoney@cnbc.com

The Govenrnment rumour Bounces the market....

Today the "rumour" abounded that the Government is putting together a bailout fund to cover both the Financial and home building/mortgage crisis at once. The only things that can be said from here is that tomorrow is expiration day, long equities and short Gold, and it is now the Fed's ball......

10 yr cups with handle

As the global financial structure is under seige and fear is high...could this be the time to BUY.....
The DOW is sporting a decade long Cup with handle formantion which is bouncing off a FIB line. It would be pretty easy to go long and place a tight stop just below the level.

Extreme caution going long here because if this pattern fails the bottom could be tested.....

Hmmmm the S&P looks exactly the same.....

However the laggard of the crowd the Nasdaq throws the brakes on a bit and adds that there could be a bit more downside first.


One interesting thing is the Slow stochastic line (the red line in the bottom of each graph) has yet to start turning or bottoming out. Seeing this in all three major indices tells me to be patient going long here and keep your Call and Long powder dry till an uptrend is confirmed.

Broken lines

Wow, if you are a trader you ar oving this environmnt. Otherwise, the whipsaws from tops of ranges to bottom of ranges could test one's fortitude.

It is noteworty that the S&P precisely touched the July lows and does appear to have more room to fall.


The VIX blew out the top of the downtrend and is definitely a barometer to keep a close eye on for a direction change.

Another way to will be GLD. Its just uncanny how GLD has bounced off the FIB extenision and retraced back to a fan line.

Also, the FXI or China index broke a long term trendline as the Chinese government lowered their rates today. I believe the bottom will be tested here before any sustainable bullish movements on the American side will hold.

The IKE, LEH, & AIG crash........

Welcome to reality...........I wanted to post charts of the culprits at hand on Friday's close so a before and after picture can be readily seen after the demise is complete.





The real key will definitely be the VIX.....How high will it go. Watch the fib lines for resistance.


Good luck and have a great week... Oh yeah, perhaps some theme music is fitting for the open....

Wally World

The last time WMT was at this level was late 1999-early 2000. Hmmm didn't the market nose dive after that?

GLD, EUR/USD, & THE S&P

How low will Gold go?
As the commodoties trade unwinds will a precious metals bottom signify the time to get back in on the long side?

Here's a thought...Where are all the profits from the Energy and commodities run-up going?















Equities? No they're down too....

Maybe the Dollar....It will be interesting to see if the EUR/USD finds support at the next FIB line.

Bull follow thru - Hah

The VIX broke through to the upside and the next stop could be above $30.The S&P took out all of yesterday's gains and breeched the bottom of the fib line. The July lows are next...

















AAPL has hit the bottom of its year long range again, but is looking weaker here. The failed inverse H&S of last month propagted this downward move. Look for a bounce off of this resistance line and then the getting short should yield some nice profits.