Pre Market Update

Bullish markets across Asia and Europe. Shanghai has crossed above the 5,000 market. Most Asian market closed up over 2%.

The decision by Bank of America to invest $2 billion in Countrywide has boosted investor confidence. BofA has gotten themselves a great deal. Rumors of them acquiring CFC a few months back raised Countrywide stock price to $45. CFC is currently at $25. The financial sector will be strong today especially among some of the mortgage lenders like IMB WM LEND NFI FMT.

The Bank of Japan has held interest rates at the current 0.5% level signalling credit will remain cheap. The Yen is down as a result and the carry trade should continue.

Quant hedge funds including Goldman Sachs Global Equity fund had huge gains last week as the markets returned to normal. The average investor is not as lucky to be able to obtain a $3 billion cash infusion as Goldmans fund did. I don't care much for quant strategies. They could work 99% of times but, the 1% they don't, you could lose your shirt and much more. The 100 year storm happens every 100 days or so it seems.

For now long is the way to go. The markets are rebounding strongly. 13,250-13,300 is another level of resistance for the Dow. S&P has some overhead at 1480-1490. The Nasdaq at 1575. Wall Street has priced in a rate cut. If it doesn't happen we could see some more carnage in the coming months. The markets should be safe for now till the September 18 Fed meeting.

Market Recap

A good day for the bulls . The Dow and Nasdaq finished up while the S&P was marginally lower. Overall though the bulls came out on top as attempts to take down the market were thwarted. Transports and oils were the leading sectors while banking as expected lagged with big names like GS BAC C JPM MER BSC UBS CFC all closing down.

Big drop in natural gas prices as hurricane Dean moves away from oil and gas producing areas of the Gulf of Mexico. I continue to add UNG here since we are still in hurricane season and all it takes is one big storm to send Natural gas 20-30% higher. The odds favor atleast one spike.

The credit crunch has forced Treasury Bill yields down the most in two decades as investors scramble to safer grounds.

Will Countrywide survive this mortgage crisis ? Thats seems to be the question on a lot of investors minds as CFC has lost two thirds of its value in the last few months. I believe CFC will survive and buying below $20 is a great bargain. Capital One in the meantime is shutting down its mortgage unit Greenpoint.

The Conference Board index of leading economic indicators rose in July and suggests continued economic growth again. This remains to be seen. I take all indicators with a grain of salt.

It appears a lot of investors feel we saw the bottom on Thursday. If this was indeed the bottom, I expect some sort of retest over the next few weeks. I would be cautious about adding to long positions here and probably start building up some hedges just in case another leg down starts. While the economy appears to be fine especially when global growth is taken into account, investors seem to be very jittery and any rumor or actual negative event could take this market down in a hurry.

Pre Market Update

The markets in Asia collapsed overnight with the Jakarta composite down over 6%. The European market are very bearish and the trend looks to continue when Wall Street opens despite a benign Consumer Price Index report.With inflation easing there is a greater chance of a Fed rate cut.

This morning, Merrill Lynch has cut the nations largest mortgage lender Countrywide Financial to a sell and raised the possibility of bankruptcy. Personally I feel CFC will make it through this crisis and the chances of bankruptcy are slim.

Deere & Co.'s fiscal third-quarter net income rose 23%, topping expectations, amid strong sales gains for agricultural, commercial and consumer equipment. DE is probably a bargain here in this market environment.

Whats Buffett been buying and selling ? Very strange how Berkshire takes a stake in Dow Jones & Co. right before Ruport Murdochs buyout offer. Insider trading or is Warren just very lucky ......

Judging by stock index futures, the US markets will open substantially lower. Will this set the stage for a rally or are we going to melt downwards ? We could see 12,700-12,800 on the Dow today. I would be very cautious though the extreme bearishness in sentiment makes me a believe a strong rally is near.

Pre Market Analysis

Fasten your seat belts. We are going to be in for a bumpy ride. The markets across Asia and Europe are all down big. There is talk that the US is entering into a bear market.

Countrywides stock is plummeting this morning after is said it faces 'unprecedented disruptions.' due to the credit crunch. If CFC falls under $20 it will be an absolute steal. They will make it past this subprime turmoil.

More talk of hedge funds liquidating positions as the worldwide financial turmoil is affecting firms black box strategies. Quant hedge funds- those using statistical computer generated data to trade positions, are not prepared for the current state of the financial market and many of these funds are falling apart as I write this.

This morning I'm preparing to play things as they come. Just for the record, I had a dream last night that the Dow fell over 1000 points. While I am not suggesting this will happen, I am including the possibility of it happening in my gameplan for today. 13,132 and 13,000 are levels on the Dow I am looking at to reduce long exposure and add to the short side if they fail. The first 30 minutes are meaningless. Might add some SRS and SKF for protection. I would not be surprised if we actually have a test of last Fridays lows and reverse to close positive. On the other hand a plunge below may mean a test of 12,700. The S&P is sitting on its 200 day moving average at 1453. Another level to look for is 1427. Below that and 1400 could be tested. Gold is up this morning which is a positive sign. Whether it says up waits to be seen.