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Will We Hold It Wednesday

What a great time we had yesterday!


Despite the myriad of market concerns, I closed the morning post saying we would be shopping our Buy List and, at 10:03, I cautioned members to put stops on our put plays and at 11:13 I felt good enough to lay out my 25 favorite plays of the moment off our Buy List, which we have been waiting to trigger since my 1/29 update. Needless to say, that could not have been timed better!


We made a few additional nice, bullish plays during the morning and I went full bull after lunch, calling a day-trade at 1:29, short-selling SKF calls (a very bullish play on a financial ultra-short) and then going for FAS (a 3x financial ultra long) just 4 minutes later. At 1:34, I said to members: "If I’m right in FAS then we get an afternoon rally and poor Matt stays white…." as member Matt and I have a bet that if the Dow stays below 8,000 for 2 consecutive days, he will get a colored comment box (like I have) and become our official bear prognosticator. I do want to point out that Matt was absolutely right in his stance and logic for months so this is nothing against him, just a friendly bet about where the real bottom is - he already has our respect and his 12/22 comments were practically a road map for what happened in the first month of the year.


We're certainly not out of the woods yet, I turned cautious at the close and suggested 1/2 covers were probably the best way to go after such a nice run which only, in reality, took us back to our old, reliable 8,066 target on the Dow. 8,217 is still the 5% line below our 8,650 mid-point and, if we don't make it back to there by option expirations (20th), we may have to reconsider that level as I join Matt in the bear pit! Remember, we have 6 more days before my rally is supposed to start and we're really expecting a flatline around 8,000 until then with 8,217 acting like a hard top to the range. I'm a lot more concerned about 8,000 holding than where we end above it.


Asian markets did their best to confirm the 2.5% rule this morning with the Nikkei up 2.73%, the Hang Seng up 2.25%, the Shanghai up 2.51% (same as yesterday) and even the Seoul Composite up 2.77%. We've been watching the Baltic Dry Shipping Index, which led us to some very profitable bottom fishing on DRYS and that index is up yet another 4% today at 1,148 as somebody, somehwere on this planet must be selling something to somebody else! The Shanghai brushed against 240 this morning and that's the 20% rule off their "must hold" level from our Big Chart. It's also 4 points shy of the exact 50% off the top mark so we will be watching China with great interest this week. FXI was yesterday's play in the morning post.


Europe is up about half a point at 7:30 but are already pulling off their highs, waiting for the US open and our ADP report. The UK is considering the "bad bank" plan, which I am now calling: Banks Under Stress Have Some Failed Assets Underperforming Long-Term or BUSH'S FAULT. Ireland is cutting public spending by $2.5Bn in an effort to balance their budget (what is that?) and France may still be on strike but it's hard to tell as the service is about the same... The ECB meets Thursday but is expected to hold rates steady at 2%. The German statistics office reported that retail sales fell by an inflation-adjusted 0.2% in December from November, falling short of economists' forecasts of a 0.5% monthly rise. The German retail industry group HDE separately forecast that retail sales will fall by an inflation-adjusted 1% to 2% in 2009.


Unemployment in Spain is roughly 14.5% (there are no "official" figures") and spinning out of control. The Spanish government is spending $14Bn on infrastructure but, according to José Luis Martinez, a strategist for Citigroup in Spain: "The adjustment of the Spanish economy is so dramatic that we'll have to see if this money actually translates into new jobs," said José Luis Martinez, a strategist for Citigroup Inc. in Spain. "Probably it will just slow job losses a bit." Spain has it good compared to Russia as Fitch cut the currency rating on the Ruble to BBBB, just above junk AND kept their outlook negative. "The scale of capital outflows and the pace of decline in Russia's foreign-exchange reserves have materially weakened the sovereign balance sheet," noted Edward Parker, head of Fitch's Emerging Europe team. Fitch went on to say the depletion of foreign-exchange reserves by the private sector, totaling $94 billion in the fourth quarter of last year, is more worrisome than the country's sovereign debt.


This is how things started in Zimbabwe and that country now prints $1Tn notes so people can buy milk without needing to lug 40 pounds of currency to the store... The Ruble is off 40% to the dollar since last summer and the Central Bank has vowed to defend what amounts to 2 cents to the Ruble yet just this week the Dollar went from 40 to 45 Rubles. Investors "want to try the central bank's resolve," says Markku Anttila, a currency trader who focuses on Russia at Danske Bank. Some parts of the currency markets already are reflecting a vote of no confidence in Russia's new framework. Contracts to buy rubles in three months are priced beyond the government's band -- in other words, they are betting the band won't last.


Dollar dumping helped our market yesterday as the dollar fell 1.25% and we will probably retest the 50 dma at 84 before turning back up. There are still no viable alternatives for currency investors and the Yen index is back at 112, just about where Japan needs to force it back down, most likely by trading Yen for dollars so let's keep our eye on that move this week. A combination of dollar strength over 86 and a big build in crude today could send oil back to its lows and we'll be looking for short plays on USO and XLE (and, as always, XOM if they dare to test $80) if we get another pointless run-up after a better than 3M build in crude inventories but I think we break +5Mb today and it will be tempting to just go short on oil into this morning's report..


Earnings are still a mixed bag but it's an air-sick bag as 10 companies out of 40 that have reported as of 8am this morning have guided down including majors like GR, KFT, R, SLE and TWX. Perhaps everyone is being conservative and, in fact, in that same group of reporters only 12 companies actually missed earnings but expectations were pretty low and no one, not one company today guided up and, for the week so far - out of about 200 companies reporting, only SMG, GHDX and IKAN guided up.


The ADP report just came out and we have 522,000 jobs lost, which is in-line with expectations and I predicted yesterday that anything under 600,000 would hold us up so let's see if I called that right. TWX and DIS were among our disappointers today. We took a chance into earnings with a $16.80/18.40 hedged entry and it does look like they are going to hold it despite EPS dropping to .45 from .63 last year. As we expected, the ad sales at ABC killed them, off 60% from last year while the park was off 24%. "We faced a challenging first quarter, with many of our businesses impacted to various degrees by the economic downturn," said Disney CEO Bob Iger. That pretty much sums it up for everyone.


We'll be happy to hold our gains of yesterday and Wall Street will be holding its breath ahead of Obama's announcement for rules on executive compensation at 11. Russell 450 would be great to hold while 464 is our breakout point on that index. Hopefully the SOX can put together 2 good days in a row and the Qs can break 30 and hold that (1,525 Nas - and don't forget CSCO tonight!) but these are numbers we'll be happy with on Friday, anything over that is a bonus as we've simply been playing to hold 8,000.


Be careful out there!


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