主题：03/20/2009 Market View -- 宁子

SUMMARY:

- Market continues the pullback, ready to test the SP500 November close.

- CBO says Obama budget projections fall far short of actual costs and forecast deficits of 4% of GDP for the foreseeable future.

- The TALF sounds great, but no one is participating thanks to Congressional disincentives to do so.

- Why the Fed was forced to go where no Fed has gone before.

- Despite the economic peril, the market is setting up for another bounce after this test.

Not bad action in the face of all the political drama.

The good before the bad, the market before the politics. That is how the report goes tonight. The Friday action was not that band and it was, despite the losses, kind of quiet for a quadruple expiration Friday. Commodities were leading higher again in the pre-market and as the session got underway. Financials were struggling again after their surge, likewise the techs and the semiconductors. All was manageable, at least when you put it in the perspective of the past several months. The market rallied for a couple of weeks with SP500 producing a 20% move off the low; a couple of days of pullback is rather normal.

Then the news hit just after lunch in New York. The CBO finished its evaluation of the Obama/Fed stimulus, budget, and bailout facilities and said the cost would be $2.3T more than budgeted because of the additional spending and an economic recovery not as rosy as the White House believes. CBO revised the 2009 deficit up to $1.8T. It further said that the deficit would remain at 4% of GDP (or actually as the CBO put it, NOT LESS THAN 4% of GDP) for the foreseeable future. Less than 2% is typical for our economy and many get antsy when it moves over 2% for even a short period of time. This is absurdly high and not expected to be just temporary, the usually cited exception for running a larger deficit in times of trouble. As a nice bit of icing, another report came out and noted 542 mass layoffs in February. A mass layoff is 50 or more at a time from the same company. Looks as if a million jobs were lost in the last two months. Not good.

The indices were idling sideways and we thought we might get a bounce in to the close that would be good to short heading into the weekend. When the news hit they jerked lower into new selling for the afternoon and taking the selling from basically flat or modestly lower to down 2% and more. Volume ramped up as stocks sold off hard. You can say it was distribution, but it was expiration Friday and a lot of positions had to be adjusted or rolled after the Fed's action Wednesday. It was clear, however, that the market reacted negatively to the latest indication that at least two branches of the government in Washington are insanely out of control with their spending and constitutional trampling.

So . . . the pullback from the rally is on. It was expected, we took a lot of gain on the way up this past week ahead of key resistance, and we closed several positions Friday just to be on the safe side for this pullback. We don't expect it to be a virulent one, more a test of the SP500 November closing low, but with the economy in turmoil and the federal government going Venezuela on us you never quite know for sure. Thus we buttoned up quite a few positions and took entered some more downside plays using SDS, DIA put options and some PG puts to play this downturn. Again, our target is the SP500 November closing low but we just have to see how the move plays out.

TECHNICAL. Intraday the action was not great, but with a pullback that was rather well anticipated, what can you expect? Higher at the open then gave it up to negative, wandered laterally, then dumped into mid-afternoon. The late rebound was not much, but it did cut the losses from pretty ugly to just homely. Always liked that oxymoron. Trying to figure out how to work in one such as 'congressional oversight' though that is more of a double entendre, as in 'was it an oversight that Congress let the AIG bonus payments slide by in the so-called stimulus bill or did Congress oversee the inclusion of the bonus payments in the so-called stimulus bill?' You could answer 'yes' to both: it was an oversight for most of Congress because they did not even read the bill. It was also overseen by the likes of Senator Dodd who knew they were in there. The usually boisterous Dodd was very quiet during all of the red-faced, spittle flying finger pointing done last week. That should have been a tip off that something was afoot.

INTERNALS. Decliners were pretty solid at nearly 3:1 on NYSE, 2:1 on NASDAQ. Not great but not near the extremes before this and not as strong as on the Wednesday follow through. Volume surged on NYSE to the highest level in 6 months, taking it back to the October levels. NASDAQ volume was just slightly . . . here comes another one . . . above average. Distribution? You could call it that, but it was expiration Friday and volume should be up. As noted above, with the Fed changing the game (or at least making a last ditch effort to do so) there had to be some positions closed and rolled given the potential a floor is being built.

CHARTS. After NASDAQ and SP500 hit resistance at 1500 and 800 twice this week they are fading back to test. NASDAQ closed just below the 50 day EMA but is above the January lows and of course the December lows. Still very high in the range and has some cushion to work with. SP500 is on the second day of its pullback as well. It is above the 10 and 18 day EMA, those offering some minor support ahead of the November closing low that is 14 points away at 752. Looking for a test of that level as a key point to find support at or near. DJ30 found resistance at its November low last week and is now testing, coming down to tap at the 10 and 18 day EMA Friday. It has some more downside room toward 7114 to 7000ish, but its moves will be controlled by what SP500 does. SOX hit the February peak and is fading as well, holding the 10 day EMA Friday. Some more downside early in the week gives it a 1-2-3 pullback, perfect positioning to rebound.

LEADERSHIP. Mostly downside Friday, but that is okay as the recent leaders continue their pullbacks. Some of the early leaders are already in their third day, and typically you want to see a stock pop back up after a three day fade to near support. Leaders are called that because that is what they do, and thus we are looking for the likes of AMZN, TSM, QCOM, BIDU, etc. to hold and vault back up. Thus far very few breakdowns and many we closed were just precautionary, protecting the remaining gain and looking to get a new entry point after they finish the test.