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Tuesday Morning Market Compass


The news you need to know.

A sampling of this morning's headlines provides a snapshot of our task at hand.

In Matador City, you've got the world's most famous investor plunking down $44 billion for Burlington Northern Sante Fe Corp (BNI). Warren Buffett, Chairman & CEO of Berkshire Hathaway Inc. (BRK), said of the purchase that "It's an all-in wager on the economic future of the United States." Fair nuff, WB, you've earned a stellar reputation as a shrewd businessman and your optimistic opinion is duly note, particularly as you've put your money where your mouth is.

Across the pond in Red Dye Junction--and very much a part of our finance based derivative laced global economy--Royal Bank of Scotland Group Plc (RBS) and Lloyds Banking Group Plc (LYG) will receive another 31.3 billion pounds ($51 billion) in a second bailout from the U.K taxpayer, according to Bloomberg. Both banks agreed to cap compensation by not paying cash bonuses to those earning (or weighing) more than 39,000 pounds.

To add spice to the mix, UBS AG (UBS), Switzerland's largest bank, was down as much as 10% overnight after reporting a quarterly loss of SF564 million (vs. estimates of SF337 million). Johnson & Johnson (JNJ), the world's biggest health care company, will cut 6-7% of its global workforce, and Nokia Siemens may eliminate over 5700 jobs as telecom equipment sales decline. Headcount reduction may benefit the bottom line, but it's hard to argue it's healthy, particularly if you're amongst those not making the cut.

Where does this leave the markets? Vulnerable, albeit oversold on a short-term basis. As discussed yesterday, the uptrends from the March low were broken in a textbook manner last week after both the S&P and NDX both pierced the downside (Wednesday), "back-tested" them Thursday and failed miserably on Friday. Through a pure technical lens, that put the defense back on the field and handed the baton from Hoofy to Boo.

As discussed in real-time on the Buzz & Banter, I've been tether balling exposure as a function of price. After covering my downside bets Wednesday and getting long for a pure trade, I flattened (early) Thursday and faded (read: shorted) the Snapper attempt early Friday. I covered half that exposure into the weekend as a function of discipline, faded (got short) the S&P and NDX yesterday morning and nibbled into the downside reversal, leaving me with a short skew on my risk profile. And yes, it's all very dizzying!

To be sure, active trading isn't for anyone and unless you're glued to your screens, you're at a natural disadvantage. My modus operandi is "hit it to quit it" and "make it to take it," all through the lens of defined risk. Through that lens, I'm eying the other side of the 50-day moving averages (S&P 1053 and NDX 1697) as near-term risk definition, S&P 1070-1075 and NDX 1750-1755 (the underbellies of the March trendlines) and S&P 1120 (the mother of all pennants) as more meaningful resistance.

Mainstay tells remain the financials (BKX 43.5 is the level to watch), the dollar (a lower greenback is a necessary precursor to but no guarantor of higher asset classes), big beta (watch Research in Motion (RIMM) as a potential long candidate if and when it fills that gap) and our technical levels (as a context rather than a catalyst).

Click to enlarge

And think positive friend; profitability begins within.


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Position in ndx, spx, uup
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