There are only two charts we are looking at going into the new week, the SPX and the XLF:



Last week’s 20% rally bottom to top really seems to be showing signs of some weakness here. The volume has all but dryed up (granted, it was a holiday) and we are coming close to being overbought. It might be a good idea to close any outstanding long positions.



The XLF continues to lead this market and unless something crazy happens, $13 will provide as firm resistance for the bulls. Similar to the S&P, the volume has been far from encouraging.

Recapping last week:

• Citi plans on cutting 52,000 more jobs on top of the 23,000 they have already cut this year.
• Target is halting its stock buyback program and plans on cutting prices into the holiday season.
• Oil continues to decline, trading below $50/barrel. Deutsche Bank stated that prices could fall as low as $30-35/ barrel.
• HP topped Q4 estimates and lifted its outlook for the year, but its outlook was still well below Wall Street’s expectations.
• Producer costs fell a record 2.8% in October.
• Online sales up only 1% for October.
• The homebuilders index for November sank 5 points to its current level of 9. Anything below 50 is considered negative.
• Home Depot beat estimates with Q3 EPS falling 24%
• Saks missed estimates as discount pricing affected their bottom line.
• October consumer prices fell 1%, the biggest monthly decline in 61 years.
• Housing starts came in at 791,000 homes for October, the slowest rate since 1959.
• Chemical maker BSAF plans on closing 80 plants and cutting 21% of its workforce, citing massive drops in demand.
• Dell topped views by six cents thanks to effective cost cutting and job cuts.
• Fannie Mae and Freddie Mac said they’re halting foreclosures on 16,000 households from November to January in order to determine if borrowers qualify for a loan modification plan set into effect last week.
• Congress decided against an immediate loan for the automakers.

Again, not really much new. The economy continues to struggle and the good news, if any, is few and far between.



Friday’s close was interesting to say the least. The volume certainly came in strong and the fact that we are overbought may lead us to a bit more upside. We would look at 850 as a possible area to initiate new short positions.

And for anyone that was watching Fast Money last Thursday, Peter Schiff came on the show to talk about where he sees the economy heading in the future. Very worth watching.



And based on gold’s bullish movement last week, he may have a point.

Well, we thought 800 would at least for a week or so, but that sure wasn’t the case today and it just sums up how crazy this market is at the moment. A picture is worth a thousand words:



At this point, there is absolutely no short-term bottom in sight that is worth playing. Investors are selling into any rallies, and at the end of the day, there is no point in trying to catch a falling knife. We plan on waiting this one out till we a massive short-covering rally on the S&P. We would look to start new short positions from there.

Also, just as a quick note, we did close below the 2003 lows. This in our view is extremely bearish and we could easily see levels on the S&P around 500 into the coming months. The news is still extrememly bad, and there are definitely going to be a few more shoes to drop before this crisis is resolved. Also, just look at that massive cliff of selling that has taken place this year. Definitely one of the most bearish looking charts we’ve seen in a long time.

The market finally broke down today to new lows today. As was expected, we managed to close just above 800. Expect this level to be tested into the coming weeks. A quick note: 800 is a level that we have not seen since March of 2003. Should 800 fail to act as decent support, we will begin to see some really unbelievable selling into this market. S&P 650 sure isn’t out of the question, but that may be a few more months down the road.



And just as a follow up to that recent post on GM, it was reported today that Alan Mulally of Ford, Robert Nardelli of Chrysler, and Richard Wagoner of GM all flew into Washington DC in private planes to request a massive taxpayer bailout of their respective companies. This may be nit picky, but at the end of the day, it’s a slap in the face to taxpayers around the country. These CEO’s are asking US for money, and yet they have the ignorance and the arrogance to fly a 30 million dollar plane halfway across the country, as opposed to booking a first class flight like any other average person might have to do. Just another poor decision to add to the seemingly endless list of them, signing those contracts with the UAW, paying unnecessary dividends even as its pension and health care costs spiraled out of control, continuing to build gas-guzzling SUV’s, and just building really poor quality vehicles, among others.



Even if this bailout does pass, it will do nothing to stave off the what is surely coming to these automakers. The reality is that the world is knee-deep in what could be a really terrible recession, if not a depression. Consumers will not be looking to buy autos anytime soon, and on top of that, the market is already highly saturated with cars that have not even been sold. The United States has been living off of credit for years and now that the bubble has burst, there is simply no more money to be spent. The party is over.

At the end of this all, Ford probably has the best chance of surviving this mess. The cars they are currently selling in Europe offer much more in the way of good design and quality than anything currently selling here in the United States. They need to find ways to implement those cars here at home. Furthermore, Mullaly does have the track-record of a turnaround artist, but let’s be honest, he has a whole lot of work to do before Ford can even look to the future.

And in closing, we leave you with the 2007 compensation figures of the big three CEO’s:

Alan Mulally: $28,000,000 (*for only 4 months on the job)
Robert Nardelli: $1 a year with compensation based on performance (he hardly needs it though as he earned $38.1 million in 2006 with Home Depot, and then landed a $210 million dollar severance package on his way out)
Richard Wagoner: $15,700,000

There are so many problems with auto industry in the here in the United States that it is in the best interests of our country if the weaker ones fail entirely. Our country was built on innovation, and innovation will eventually lead us out of this mess. There is simply no point in subsidizing a lost cause with hard-earned taxpayer money.

Similar to last Friday, we got a precipitous amount of selling going into the closing hour of trading, and at the end of the day, it has to be considered bearish. Volume was fairly light today, though, and the fact that we closed right at 850 leaves us cautiously optimistic going into tomorrow. That MACD crossover to the negative won’t help out the longer term trend, however.



That 850 level really needs to hold in order to see any sustainable rally into the next few days. From a broader perspective though, it would seem safe to say that this market has not bottomed by any means and longer term investments should be considered accordingly. The charts that we’re looking at continue to look extremely bearish and as crazy as this might sound, we could still see more downside.

And on a side-note, here’s GM’s plea to Americans to save them from the inevitable:



The dominant theme in this video is one of FEAR. And to that, we give the following comparison:




vs.

Why?

It really is shocking what our country is coming to. How can we possibly bailout such stupidity? Let’s face it, we are in a recession, and some companies, small and large, will not survive. Sadly enough, GM is one of those companies.

Quickly recapping last weeks news:

• Circuit City filed for Chapter 11 bankruptcy on Monday.
• The Treasury boosted its aid for AIG to $150 billion after the insurance giant posted a $24.5 billion dollar loss in Q3.
• DHL is cutting 9,500 US jobs.
• Deutsche Bank cut its price target on GM to $0, which is probably the best piece of fundamental analysis on GM that we’ve seen in awhile.
• McDonald’s continues to outperform as same-store sales rose 8.2% from a year ago.
• The IBD/TIPP Consumer Confidence gauge was up 24% for the month of November. The presidential election, falling gas prices, and the so-called rescue plans are said to be the catalysts.
• Toll Brothers posted a 41% loss of revenue for Q4, above analyst extremely conservative estimates.
• Hank Paulson says the Treasury won’t buy banks bad mortgage assets, which contradicts pretty much everything he said about a month ago.
• Intel slashed its Q4 revenue target citing weaker demand. They also plan on cutting 1,800 jobs.
• Best Buy cut its full year sales and EPS saying that it’s the worst retail climate ever.
• The IDC cut its outlook on tech spending from 5.9% to 2.6%.
• Initial jobless claims rose 32,000 to 516,000, its worst reading since 1982.
• Walmart topped EPS estimates, but guided lower.
• Retail sales plunged 2.8% while J.C. Penny and Abercrombie and Fitch both cut holiday quarter guidance.
• Nokia cut its Q4 sales forecasts citing economic woes.
• Sun Microsystems is cutting 15-18% of its workforce.
• Citigroup is planning on cutting 10,000 members of its global workforce.
• Hartford Financial is asking for government aid.
• Freddie Mac lost $25.3 billion last quarter, necessitating an immediate $13.8 billion in loans from the Fed.

It’s pretty much more of the same from a fundamental view.



Last Friday’s trading was a bit unexpected to say the least, but you have to take what the market gives you, and in this case, we’ve been given quite a bit of uncertainty. The fundamentals have certainly not changed for the better, but from a technical standpoint, we are still somewhat bullish based on Thursday’s big volume day. We could still see a rally from here, but a close below 850, would be very bearish, so keep that in mind.



The XLF made new lows last week as we mentioned in the last post. Because the financials have lead the market over the past few months, this does leave us concerned about the short-term relative upside left in this market. However, the XLF is oversold and Thursday’s big volume day was bullish from a technical perspective, but we need to see a follow through to the upside on Monday.



The XHB is looking fairly similar to the XLF currently. Again, though, we need to see a bullish follow through on Monday. Otherwise, we may see more immediate downside.

Well today looked scary at first, but we got what we were looking for in terms of a bounce. We could see some more upside here, and 1000 doesn’t look all that far away.



The longer term trend remains down though. Now may be the time to unload those unwanted long positions.

Well today we finally fell to and held the October lows on the S&P500. The next couple of days will be important in determining the intermediate direction of this market:



The battle for that 845-850 area should provide some great trading going into the next couple of days. The volatility is sure to increase, so expect massive price swings. However, the bias in this chart is definitely to the downside. Note the selling volume, as well as that MACD crossover looming. And when you couple the chart to the fact that we haven’t seen even one piece of decent economic data for weeks now, the picture looks pretty gloomy. That being said, we could very well bounce back off that 840 to retest 1000 again, but we wouldn’t say the bottom is in just yet. As always, volume will be the confirming factor.



The XLF has been a market leader for months now and the fact that it broke to new lows today leaves us slightly more bearish. We’ll see what happens later this week, but it should be interesting.

Edit: just noticed that Inel warned in afterhours of sharply lower earnings for this quarter. Tomorrow morning may get ugly.

Quickly recapping last week:

• The ISM Manufacturing index hit a 26-year low last week, dropping 4.6 points to 38.9, the lowest since September of 1982.
• Auto sales are now at 25-year lows. October sales for GM fell 45%, while Ford’s sales fell 30%. Toyota’s sales dropped 23%.
• Bankruptcies rose 13% from the month of September and 47% year over year. California bankruptcies rose 76% year over year.
• Circuit City is closing 155 stores in order to restore profitability to the company.
• September factory orders fell 2.5%, worse than expected.
• UBS, The Royal Bank of Scotland, and JP Morgan all warned of more troubles that would result from the current financial crisis.
• Cisco warned of a sharp contraction in business going into Q2.
• ArcelorMittal missed estimated and stated that they plan on cutting global output by 30%. Shares fell 21.5%.
• Jobless claims jumped 122,000 to 3.8 million, a level not seen since 1983.
• Same store sales fell .5% vs. the previous year. Wal-Mart beat expectations as consumers continued to look for bargains in food and other staples. Apparel chains suffered sharp declines.
• Toyota cut its outlook for 2009 in half.
• Qualcomm beats estimates but guided lower for the year as they see a possible drop in demand.
• Employers cut 240,000 jobs in October, bringing the jobless rate to 6.5% from 6.1%.
• Ford and GM both posted massive losses last quarter. GM burned through $6.9 billion in Q3 while Ford cruised through $7.7 billion. Both firms are planning job cuts. The bombshell, though, came from GM when they stated the need for government help to allow them to continue business into 2009.
• Berkshire Hathaway stated that Q3 EPS fell 19%.
• Pending home sales fell 4.6% in September.

Again, not really much can be said. The economy is in tough shape.



It’s a trader’s market out there for those that have the time to watch the market. If you don’t have the time, you can never go wrong with cash.

Here’s what were looking at going into the remainder of the week:



And the presidential election tonight should be an interesting, if not historic one.