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Minyanville's Before The Bell: Crunch Effects Not Over, U.S. Economy Expected To Slow, Futures Point Lower


Banks are still holding on to large amounts of debt, but economists do not expect the worst. Futures point lower.

Morning Perspective: A Credit Crunch Aftershock?

In the aftermath of the Fed rate cut, major investment banks are still holding approximately $400 bln in loans for leveraged buyouts. These banks are under major pressure to sell these loans or face being stuck with them as risks increase due to the slowing of the U.S. economy.

Although the rate cuts did help, the banks are still faced with decisions on the other 90% of the LBO loans in the pipeline. (From WSJ) Read Professor Shedlock's Consumer Credit vs. Weakening Demand and Toddo's The Current Landscape in Four Primary Metrics for further analysis of the economy.

The Bull Pen: Goldman Sachs (GS) hit an all-time high yesterday after the release of the FOMC minutes. The stock has moved +15% since its September breakout and 30% since its August lows. Look for a retest of the $234 level, which could also serves as a "sell stop" for those looking to get involved. Lehman Brothers (LEH) looks to be tracing out a "cup and handle" pattern with a move through $65.

The Bear Cave: The brokers are facing key resistance between XBD 243.5 (200-day) and XBD 250 (head & shoulders breakdown). The BKX faces similarly staunch resistance at BKX 111.50. Extended names, away from Goldman, include Morgan Stanley (MS), which will run into heavy resistance at $70 (buy stops above).

An Outlook For The U.S.

In a survey of 71 economists, the U.S. economy is expected to avoid a recession and grow at an annual rate of 1.8% in the fourth quarter. Housing is expected to continue fall along with sales of furniture, appliances, and building materials as declining home sales and property values will continue to erode consumer confidence. (From Bloomberg) Read Minyan Peter's Bank Data Reveals Stretched System for more insight into the health of the consumer.

The Bull Pen: The negativity in housing-which may be warranted in the long-term-often provides short-term trading opportunities. Contrarians may look to Meritage Homes (MTH) (sell-stop below $14.00). We also note that Ryland (RYL) is tracing out a reverse head & shoulder pattern (bullish) which will stay in play above $24 (defined risk).

The Bear Cave: The Philadelphia Housing Sector Index (HGX) has broken numerous technical levels after the housing bubble burst. If traders choose to "fade" (read sell) rallies, a trade into HGX 185 is a high probability set up as that is where the index broke down during October 2004, July 2006 and again in July of 2007.

Check Minyanville's Stocks to Watch for more company-specific ideas!

A Quick Check Around the World

Asian markets finished strong. Hong Kong's Hang Seng finished up +1.21%, the Nikkei added +0.10%, India's Sensex added another +2.07%, and Shanghai closed up +0.97%.

Markets are mixed in Europe. In the U.S, S&P futures are lower by 2.70 points to 1573, and Nasdaq futures are down by 2.5 points to 2191.

A Look At Commodities

Commodities are up this morning. Crude oil is up +0.06 to 80.32 and gold futures are up +5.6 to 748.60. Silver and Copper are also strong this morning up +0.17 and +4.65 respectively.

On The Radar

Wholesale inventories data is due out at 10:00 AM EST. Click here for Minyanville's trading radar.

Take a minute and have a look at Hoofy & Boo's new video. Good luck and happy trading!
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