October 15, 2008

Global Market Comments for October 15, 2008

1) The Dow cratered 7.9% today, the greatest one day loss since 1987. Sell programs from distressed hedge funds hammered the market right into the close. LIBOR is coming down, but not fast enough. The Treasury/Eurodollar interest rate spread (TED) is now 300 basis points, compared to 75 basis points before the Lehman bankruptcy and 10 basis points 18 months ago. With crude down to $74, oil companies led the downturn. Exxon (XOM) is now down to a 7 X earnings multiple. Traders are sitting in front of their screens with their mouths agape.

2) Wells Fargo and JP Morgan announced decent earnings today. Their stocks are unchanged YOY. Going long these two and shorting the rest of the financial sector would have been the mother of all pairs trades. You would have made 80% on a non leveraged, market neutral position.

3) Equity mutual fund redemptions for the first two weeks of October came to a staggering $55.8 billion, a multiple of the previous record. This is another classic sign of the market hitting bottom. On Friday 97% of all stocks were below their 200 day moving average.

4) Earnings. Remember those? Intel reported Q3 revenues of $12 billion and a net of $3 billion, giving a gross margin of 58.9%. They don't borrow, financing 100% of their spending from a massive cash flow. It is still an amazingly profitable business. Did I mention that the stock has plunged by half from $28 to $14 this year?

5) A New York Times/CBS poll today showed Obama ahead 53% to 39%. I guess voters looked at their 401k statements over the weekend and threw up.

6) September PPI fell 0.4%, retail sales plunged 1.2%, and August inventories rose by 0.3%, all good recessionary numbers.

TRADE IDEA

Use this run to retest the 7,700 low in the Dow to load up on November S&P 500 1000 calls on the cheap. Today they closed at $22. You can count on a 1,000 to 2,000 Dow rally going into and after the election. The technical indicators show us at 1929, 1973, 1982, and 2001 lows. Because of a fluke in the calendar, November equity options have an unusually long maturity this month.

Legal Disclaimer

There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.