channels & tls

Fake-out

Long Term Vix

There's The Retracement Rally I Was Looking For

I don't know if anyone remembered my posts at the beginning of the year expecting a 100% retracement of losses in the financial sector - well today it finally arrived. Granted this retracment was from a lower low than I expected. In any case - better late than never.

Dribs & Drabs

VIX Update

Odds point to the VIX getting a bid next week.

BKX Update

Caution

Vix Update

All Hands On Deck

What the Fed, the Treasury and the Obama Administration have attempted is to bridle the bucking bronco that has become our capital markets. Although the markets have been under pressure as of late - it has been a direct result of premeditated ambiguity by various government officials towards the savage beast herself.

Now mind you this type of intervention could not work in most market conditions - i.e this fall. There was far too much selling pressure to be overcome by information and rhetoric. It was man verses nature and we all know who wins that battle. Where we are currently sitting is in the doldrums of the storm. The ship is in tatters, the crew is demoralized and looking for answers and leadership. Mass psychology now becomes either the crews downfall or secret weapon to survival. It is up to their captain to suspend the aroma of certain death and inspire a path towards safety. They just need to believe in the option of survival.

Let's see if Geithner can earn our respect and lead us to safer waters. I still believe this is an engineered test of the November lows. Time is of the essence to many businesses models from annuity to insurance companies and I believe the Treasury felt compelled to "induce" a weaker market in the short term to allow for a healthier market in the long term. No sustainable returns would be possible without a test of the markets lows from November.

I am drinking the cool-aid on deck with the belief that the world is not going to hell in a handbasket. From my perspective, and ironically - there are far to many idiots on that side of the fence right now.

The Bulls Last Stand

Bottom Forming

BKX Update

12:00 For those who may have missed out on the low - we will in all likelihood retest those levels later in the day (post 3 PM). Tomorrow things should improve dramatically.

3:00 Looks like the retest was during the 2 PM trading hour.

Which Side Of The Mouth To Believe?

From the Financial Times today -

Bank nationalisation gains ground with Republicans

By Edward Luce and Krishna Guha
Published: February 17 2009 19:44 | Last updated: February 18 2009 01:07

Long regarded in the US as a folly of Europeans, nationalisation is gaining rapid acceptance among Washington opinion-formers – and not just with Alan Greenspan, former Federal Reserve chairman. Perhaps stranger still, many of those talking about nationalising banks are Republicans.

Lindsey Graham, the Republican senator for South Carolina, says that many of his colleagues, including John McCain, the defeated presidential candidate, agree with his view that nationalisation of some banks should be “on the table”.

Mr Graham says that people across the US accept his argument that it is untenable to keep throwing good money after bad into institutions such as Citigroup and Bank of America, which now have a lower net value than the amount of public funds they have received.

“You should not get caught up on a word [nationalisation],” he told the Financial Times in an interview. “I would argue that we cannot be ideologically a little bit pregnant. It doesn’t matter what you call it, but we can’t keep on funding these zombie banks [without gaining public control]. That’s what the Japanese did.”

Barack Obama, the president, who has tried to avoid panicking lawmakers and markets by entertaining the idea, has moved more towards what he calls the “Swedish model” – an approach backed strongly by Mr Graham. In the early 1990s Sweden nationalised its banking sector then auctioned banks having cleaned up balance sheets. “In limited circumstances the Swedish model makes sense for the US,” says Mr Graham.

Mr Obama last weekend made clear he was leaning more towards the Swedish model than to the piecemeal approach taken in Japan, which many would argue is the direction US public policy appears to be heading.

“They [the Japanese] sort of papered things over,” Mr Obama said. “They never really bit the bullet . . . and so you never got credit flowing the way it should have, and the bad assets in their system just corroded the economy for a long period of time.”

I would be weary of rhetoric and public discourse by government officials here. They may be setting the bear trap for the market on options expiration. This reminds me of September 2007 when Fed officials said one thing and sprang the trap on options expiration with "surprise" action. The market catapulted to new highs a few weeks later. Of course new highs are off the table - but I haven't given up on S&P 1000 before fresh lows.

From all angles this week smells like the scenario I have been expecting for some time. The administration holds a few powerful cards. Don't expect them to roll over and fall on their sword. Geithner knows how to play the market's game of bluff, empty rhetoric, ambiguity and trap doors. Too much depends on market stability here to deliver nationalization or tangible hints at it during a technically fragile trading environment. It would reintroduce systemic risk to the system at precisely the wrong time. Remember Lehman Brothers? Perhaps a few hundred points higher on the S&P would give the market cover to digest these enormous tasks- but not now - not during the retest. I do believe it would significantly reduce systemic risk in the long term - just not at this critical level of support.

Remember last week Obama had this to say about nationalization.

Obama: Nationalization "Wouldn't Make Sense"
By Zachary Roth - February 10, 2009, 6:57PM
In the wake of Tim Geithner's speech this morning, laying out the Treasury's plan, such as it is, for Bailout 3.0, most smart observers have concluded that the Obama administration has at least left the door open for a possible nationalization of failed banks at some point, if it decides circumstances warrant that step.

But in an interview with ABC News' Nighline, set to air tonight, the president seemed to all but rule out that idea. He told ABC:
[Sweden"] took over the banks, nationalized them, got rid of the bad assets, resold the banks and a couple years later, they were going again. So you'd think looking at it, Sweden looks like a good model. Here's the problem -- Sweden had like five banks," he said, laughing. "We've got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the, the problems in terms of managing and overseeing anything of that scale, I think, would -- our assessment was that it wouldn't make sense. And we also have different traditions in this country.

I think the last comment is closer to the truth for now. We shall see.

BKX Update

I believe we are making our way through another washout low in the financials. I would be a buyer of them after tomorrows open. I am expecting the BKX to fall by another 7 to 10% between then and now.

11:45 - Those looking for a daytrade with considerable meat may consider the FAZ around 57.50. I expect it to take off post 12:30 and go parabolic into the close. TIGHT STOPS ARE A MUST!

12:35 - Can't even take my own advice - sold at 58.85 for a modest gain. Can't trust this market on the short side. Too many things could blow that trade apart.