We will both be out of town this weekend. Look for normal posting to resume Tuesday.

Recapping the events of last week:

• Texas Instruments posted a lower than expected profit and cut their outlook for the year.
• American Express blew out earnings. However, those estimates had already been lowered for the year.
• Yahoo matched estimates and announced plans to cut 10% of its workforce. Yahoo also reduced their revenue estimates for the year.
• DuPont beat and said they expected weakening demand in North American and Western markets for the remainder of the year.
• Fifth Third Bancorp badly missed estimates and stated that they are considering taking part in the Treasury’s plan of buying Tier 1 securities from banks.
• US Bancorp’s profit disappointed as they stated that future performance could further suffer due to market conditions. They also mentioned that they were not fully convinced that the Emergency Economic Stabilization Act of 2008 would be able to completely stabilize the financial system or other economic conditions.
• Blackrock profit fell prior to the previous year.
• Coach beat estimates by a penny citing strong demand in Asia. They also cut their sales outlook for the year, but kept the earnings outlook for the remainder of the year.
• Apple beat earnings, but gave a weak outlook for the year.
• Boeing profit fell sharply on concerns of the companies outlook going forward.
•AT&T missed expectations despite gaining subscribers.
• McDonalds beat expectations as consumers were looking for cheaper places to dine.
• Wachovia posted a $4.8 billion dollar loss.
• Kimberly Clark posted a lower quarterly profit and cut their full-year profit forecast.
• Conoco Philips beat earnings on higher oil prices.
• Lockheed Martin beat estimates and raised its full forecast for the year.
• Amazon cut revenue and income forecasts for the year saying the holiday quarter would fall short of analyst expectations.
• Microsoft records a rise in profit, but lowered its full year earnings forecasts.

and finally...

• Jobless claims rose to 478,000 as Friday’s gain of 15,000 claims was more than expected.
• And the FDIC says a bigger mortgage fix is needed because $750 billion was not enough.

There are a couple things we need to touch on here.

First, the overall theme for earnings thus far has been “lowered outlook” or “cut forecasts.” This leads us to believe that estimates for the remainder of the year are still too high. The same could be said going into 2009. Currently, the S&P trades at a P/E of around 24. That is a number that could easily fall into the next few months.

Secondly, there has been a lot of news over the past few weeks concerning the loss of jobs in the United States, with General Electric, Goldman Sachs, and Coca-Cola being the headliners. Current unemployment in the United States has been most recently figured at 6.1%. California’s most recent data came in at 7.7% and since California can tend to be a leading indicator of where the economy might be headed, we would look for that number to also rise into the remainder of the year.

Overall, the fundamentals are still deteriorating. There are some places of strength (bio-tech, agriculture, etc.), but for the most part, the trend is still down.

Only three charts to focus on today:



Friday’s action was very left us with a much more bearish bias going into this week. The fact that we closed below 900 on decent volume was definitely not what we were expecting going into Friday. In order to see any rally from here, we need to get back above 900 in a hurry. If we fail to do that, then the shorter-term trend is lower. The next support level on the S&P is at 855. 900, 960, and 1010 continue to provide resistance on the way up.



The financials came close to retesting the lows set a little earlier this month. Could we get a pop from here? Maybe, but seeing as how the S&P traded last Friday, don’t try to bottom pick around this one.



Back in early August, we noted that the XHB was trading at very high levels around that $20 area and in a little less than three months, the XHB has fallen about 40% from those levels. We also managed to form new lows over that period. $14.35 remains firm resistance and from there, the trade would be short. We would not be trying to pick any bottoms here, though, because it’s literally been straight selling for the past four weeks.

And that’s about it. Keep in mind that these are only our views on current market conditions, and they should be used only as that. Good luck.

It’s going to get real ugly today before it gets better. Don’t try to catch a falling knife. Global markets got crushed last night and honestly, support levels mean nothing on days like this. Also, this is the perfect example of why we haven’t been holding positions overnight. You can think you know where the market is headed, and then something like this will happen. Incredible.

-Andy and Sul

Another simply amazing week of trading action. The volatility has just been unreal. Today’s action was actually somewhat bullish from a charting perspective. Volume increased relative to the rest of the week and we managed to hold that 900 level for the forth time on the S&P. Looking into Friday, assuming we don’t get a terrible jobs number tomorrow, we could make a run for 960.



We’ve said it before though, and we’ll say it again. This market is purely a trader’s arena, and if you don’t have the time to follow the position, don’t even bother placing the trade. For those that are trading, we highly recommend trading the indexes, especially if you are playing the options. They are extremely liquid and the pricing action has been phenomenal.

And in case anyone missed it, Greenspan admitted today that he had no idea what was going on while he was running the show:



At least he is willing to admit it.

-Andy

Just a real quick technical analysis of a few indexes for the upcoming trading week:



Resistance: 1011
Pivot: 960
Support: 900



Resistance: $17.05
Pivot: $15.05
Support: $13.1



Oil’s been a shocking trade as of late. Anyone that buys gas would have noticed. Support around the $59 area dollars looks interesting for a bounce. OPEC is calling emergency meetings to discuss global oil prices as well. If you have a high risk tolerance, there may be a trade here.

And that’s about it. Expect more choppy sessions into this next week.

Good luck.

Edit:

Check out this article. It’s about Andrew Lahde, the manager of the Southern California hedge fund, Lahde Capital who returned 866% in the market last year betting against the sub-prime collapse. “Lambasting” I think is the correct term here.

Also, check out Marc Faber’s comments in this video. He really is spot on. Mish already posted it here, but it really is important to understand the root of this current financial crisis.



-Andy and Sul

We’ve got options expiration tomorrow, not to mention some better than expected GOOG earnings to trade on. Judging by the trading that’s gone on over the course of this week, it looks like we may be forming a new trading range on the S&P500:



That 900 level has now been tested twice now and has held up considerably well both times. We would look for that to be the new short-term floor. The area around 1060 looks to be the area of new resistance. However, we’ve only tested it once so far, so we’d like to confirm that with a second test. We are using that 960 level as a pivot point to enter and exit positions as they come. Take note that volume increased today, as well as the fact that we failed to make lower lows, which actually leaves us with a bit of a bullish bias going into Friday. Who knows though. Whatever the result, it’s sure to be another crazy session.

On another note, has anyone been day-trading this market? I don’t know about you all, but these past few days have been a day-traders paradise. We’ve put together a few good trades ourselves that we’ll post up in the portfolio performance this weekend.

-Andy and Sul

Well, we’ve been talking about it for a few posts now, and indeed, we got finally got that massive rally as the S&P climbed 104 points or 11.5%. The volume across the indexes today was pretty weak though, so we’re not really looking into it all that much. But we did break 960 on the S&P and we are expecting a bit more of a rally here. More specifically, we are looking at 1060 on the S&P as the next level of resistance. From there, it’s anyone’s guess. The long-term trend is still down though, as if that was much of a surprise.

-Andy

Quickly recapping last week:

• The Dow lost 16%, the Nasdaq fell 13%, and the S&P dropped 16% in what was a history making week on Wall Street.
• Ford and GM shares both fell to all-time lows as the S&P placed both of the automakers on watch for credit downgrades. GM’s stock fell to as low as $4.00 before rallying to $4.89 last week and Ford is now trading at $2.00.
• Regional bank National City is putting itself up for sale after the sub-prime woes have taken its toll on the institution. National City is down 80% for the year.
• Iceland is on the verge of a financial collapse as the government took control of the nation’s largest bank.
• The oil trade broke down last week as concerns of a global recession remained intact. Oil is now trading at $80 a barrel.
• Nancy Pelosi wants to bring lawmakers back to Capitol Hill, as she seeks a second $150 billion economic relief plan for Americans.
• Treasury Secretary Hank Paulson is actively considering buying troubled shares of troubled banks in an attempt to shore up the financial system. If that doesn’t constitute socialism, then we don’t really know what does.

Again, nothing has changed fundamentally with regards to the economy and technically, things continue to look just terrible. However, we’ve been saying for the last few posts that we are expecting some sort of snap-back rally into the next few days, as we are terribly oversold, and we still believe that to be the case into the coming week. Let’s take a look:



Friday was an interesting day, as we saw heavy volume and wild swings on throughout the indexes. Could 840 be a short-term bottom? Only time will tell, but the fact remains that the bottoming out process of an index will take months to properly form. So, if we missed this bottom, the odds are that we will likely be able to enter at these levels again sometime in the not too distant future. In our view, though, we could still see some selling into the later stages of this week. Ideally, we’d like to see a test of 800 on the S&P before we get long with any conviction.



The Nasdaq has been by far the most interesting index as of late. We’ve seen some pretty noticeable strength among tech giants such as Apple, Google, and Research in Motion. If we are in the early stages of forming a bottom here, big-cap technology definitely looks appealing. Again, though, you have to trade around this market and put risk-management first.



The XLF got crushed last week as the short-selling ban was repealed. However, we saw quite a bounce off of $13 to the current price of $15 on nice volume. If we ever reach that $17 level, the trade short without question. Let’s hope the government doesn’t reinstate that short-selling ban though.



This GLD chart has been unbelievably choppy as of late. That $82 level looks to be a nice entry point to the long side. However, there are definitely other charts we’d rather be trading.



Apple has been trading very well given current market conditions. There are a lot of buyers coming in at these levels and if we are reaching something of a bottom here, Apple is priced at a 19 P/E, which is almost unheard of if you have been following this company for the past few years. Furthermore, Apple has almost $20 billion in cash on their balance sheet, a huge plus in these tight credit markets. This is definitely a stock to keep an eye on.

That’s about it from here. We are getting closer to a short-term bottom. If it turns out that Friday was the low for the next few weeks, don’t get too anxious to buy in because bottoms take months to form and often will provide for multiple points of entry. Our focus for this week, though, is 800 on the S&P. We’d really like to see a test of that level before we start calling bottoms anywhere.

-Andy and Sul

It was a really shocking last hour of trading today. We just saw a cascade of selling and finished at the absolute lows of the day. It’s depressing, it’s bloody, and it’s definitely not fun to watch. A lot of people are hurting out there, that’s for sure. That being said, we don’t think the selling is over:



In the first nine days of October, we’ve already seen a 200 point loss on the S&P. We mentioned that 960 was the level we would be heading to a couple posts down and indeed, we got that and more. The really crazy thing is that 20-year, 960 level of support provided little or no support at all. In fact, we just plowed right through it on the way to 900. And even more shocking, the fact that the volume isn’t supporting this selling, meaning that the volume is not high enough to constiute a possible reverse in trend to the upside. Yes, we are unbelievably oversold, but it looks as though we may see even more selling before we find a rally.



The Nasdaq is in a similar situation: down almost 500 points since October 1st. The volume here is more appealing that the S&P relatively speaking, but still nothing we would put money on. If anything, though, the Nasdaq might be finding a bottom quicker than the other indexes. The trading on AAPL, GOOG, and RIMM was exceptional today given market conditions, so that may be something to keep an eye on. Big-cap tech do have the balance sheets that a lot of these other companies do not, so that may be an area to nibbling at.



Well the XLF has been really crushed here over the past week or so. Again, oversold, but the volume just doesn’t support a bottom. Just look at the volume on the 18th of September: almost twice the volume. And the same goes with the lows of July. We could see more selling here.



And wow, talk about a trade. We pointed this one out numerous times over the past month so hopefully you caught it. When the XHB was trading at that 200-day moving average, surely, something was not right and the market soon corrected itself. We’ve gone from $20 to $15 in less than two week. Unreal. We’ll see if that support level at $14.4 holds. If the other indexes are any indicator, this support level probably won’t last long either.

It’s just a crazy market. That’s all that can be said. You have to trade your way around it. Nothing can be considered a buy and hold and any position must be watched closely. We are looking for something of a massive rally into the coming days, but only after we see a true volume-confirming washout.

Good luck.

-Andy and Sul

Sidenote: we are trading again and the portfolio performance will start getting updated as we go. However, many of our current trades have been very short day-trading positions due to the volatility of the market, so we haven’t really been able to post our live entry and exit points. Hopefully we can get back to doing that here in the next few weeks.

Basically, it all comes down to this: we need a precipitous, high-volume day in order to see any sort of short-term trend reversal. It looked at though we might have had one yesterday, but we lacked the follow through today. We’ll see what happens tomorrow, but closing below yesterday’s lows leaves us hesitant to put any money to work, especially on the long side. We are very oversold and we are expecting a fairly decent rally here sometime soon. But again, volume remains key, and we just haven’t seen it yet.

-Andy

Quickly recapping last week:

• The bailout was signed into law last week. However, the markets sold off almost 4% from the highs as investors realized that this bailout plan will not prevent the deep recession we will most likely see over the course of the next few years.
• The U.S. economy lost 159,000 jobs in September and unemployment remained at 6.1%. We haven’t seen this level of unemployment since ’03.
• Wells Fargo and Citi are battling it out for what’s left of Wachovia.
• California is seeking $7 billion of short term financing from the Treasury because they can’t meet state payroll obligations.
• Berkshire Hathaway bought a 3 billion dollar stake in GE. GE’s stock fell 10% last Thursday.
• Auto sales tumbled in September. Ford sales dropped 34%, GM’s dropped 16%, Toyota’s dropped 32%, and Honda’s dropped 24%.
• AIG has already used up $61 billion of that $85 billion loan they got only two weeks ago.

Again, we saw absolutely no good news last week. That jobs loss in September was the ninth straight month of consecutive job loss, not to mention the biggest monthly loss of jobs since March ’03, and with the way things are going at the moment, those numbers are only going to get worse. Only a few charts on tap for today:



The next area of resistance is at the 1060 level, which isn’t shown on the chart. We haven’t seen the type of capitulation that we’d like to see when picking a short-term bottom. However, we are approaching oversold and that 1060 level could bring in a few buyers. If we ever reach that 50-day again, the trade would be short from there. Honestly, though, that probably won’t happen for the foreseable future.



Similar to the S&P, we are approaching oversold levels here. 1900 looks to be a nice area of support on the Nasdaq and we would use that area as a long entry point. We would not initiate any new short positions here.



The trade on the XLF has been to get short at the 50-day (yes, we know you can’t short, but buy puts, etc.) If the XLF reaches that $18.5 level, that might be a nice risk/reward entry point to the long side. Stop losses are necessary in this environment, however, and volume is key in determining any short-term reversal.



The USO is coming back to nice levels again here. That $72.5 level is multi-year support and could make a nice trade to the long side. Again, stops are a must.

And that’s about it from here.

-Andy and Sul

The only market moving news on the agenda tomorrow will be whether or not the House passes that bailout plan.

Here’s a chart of the S&P with marked resistance levels:



If things get really hectic tomorrow, there a 965 support level on the S&P around, which, we might be buyers. On the upside resistance, we have 1175, 1220, and 1270 to break through. If we make the 50-day, we’d be looking to get short for a bounce back down, as there have been a lot of sellers there for the past three months.

And that’s it for today. Check out that Palin/Biden debate tonight. Could be interesting.

Andy and Sul