STOCK MARKET CRASH

Today is going to be one hell of a day in the equity markets. Dow futures are showing an open of down 500 points. The way things are shaping up I expect the circuit breakers to be deployed especially as the Dow flirts with minus 1000. This will be the biggest market crash since 1987.
The Fed has stepped in and cut rates by 75 basis points . A Fed cut at this stage is like treating cancer with Aspirin. It will have no effect.

The play for todays market is probably to cut back on long positions by atleast 50%. I am sitting on almost 30% cash with another 20% in inverse long ETFs such as SKF and SRS. I do have one silly play having gone long QLD though the losses here will be more than cancelled out by my inverse ETFs. It was fear of a bounce that held me out from being atleast 50% invested in inverse ETFs. I should have been more afraid of a day like this in retrospect. Oh well I have plenty of cash and can deploy it as I see fit. I could go long and buy quality names at a huge markdown or I could play the bull ETFs if I see capitulation. On the other hand I could throw it all into QID DDM SDS MZZ FXP or other inverse ETFs if I see things headed lower.

HOW TO PREDICT THE MARKET

The Dow Jones Industrial Average is an index composed of 30 stocks. IBM XOM BA MO MMM UTX PG JNJ CAT KO make up just under 50% of the index. These 10 stocks lead the Dow up or down. If these stocks start gaining strength, it is almost a certainty that the Dow will too and vice versa. Keep an eye on the movement of these stocks and you can time the Dow intraday. Today for instance, IBM is up nearly 6% in premarket. IBM is 6.76% of the Dow. XOM is up over 1%. XOM is 5.61% of the Dow. MO (5.1% of the Dow) is up 1.5%. PG (4.55%) is up 1%. Just by keeping an eye on these major components one can see that the Dow will be very strong to start the day. If strength holds among these top 10 names, its likely the Dow will have a strong day.

The same study can be done with the S&P 500 by breaking down its components. Some of the S&Ps biggest names are also part of the Dow - XOM GE MSFT T PG JNJ . Throw in CVX BAC MO PFE CSCO AAPL IBM GOOG AIG JPM C KO MRK VZ and you have the top 31% of the S&P 500. 20 stocks in total. Many of these names are also up strongly in premarket - GOOG AAPL CSCO BAC JPM apart from the Dow names we mentioned before. So again I expect the S&P 500 to start the day of very strongly and as long as these big 20 stocks stay strong, its likely the S&P will have a strong day.

A POSSIBLE MARKET BOTTOM ?

The futures are starting to climb here this morning. The Asian market were killed though Europe is recovering and it appears many indices will finish in the green. After being murdered in after hour trading, it appears INTC is recovering here after a Morgan Stanley upgrade this AM. Would not surprise me if we rally all day after a lower open. Also keep an eye on the Yen which needs to weaken in order for a sustainable equity rally.

THERE WILL BE BLOOD ( IN THE MARKET)

This aptly titled movie could be referring to the stock market itself. There will be Blood. How true.

In after hours Intel INTC is being disembowled after reporting soft earnings and weak guidance. Futures are down by alot and tomorrow is likely to see an open a few hundred Dow points down.

Option expiration is on Friday and I do suspect we could get some upside after some panic selling to start tomorrow though I wouldn't bet on it. For all I know the wheels could really come off and we may close down 5% across the board. I really want to see panic selling amongst retail investor before I step in on the longside. Until than I continue to play the shortside via SKF and SRS.

A WELCOME RALLY

A welcome rally for bulls and in some cases bears as it allows them to reload short positions. In any case I feel this rally may be very short lived considering the economic data releases on the horizon . Producer Price Index and retail sales tomorrow along with the New York manufacturing report. Consumer Price Index and and Industrial Production reports on Wednesday with Housing Starts and the Philly Fed survey on Thursday followed by Option Expiration on Friday. This will be one busy week and probably highly volatile. I am already excited !



Currently I am long QLD while betting against financials via SKF and housing via SRS though I lightened up on both these positions last week.I will look to add more SKF and SRS if we rally hard this week. Took some of the table on GLD today. I am looking for a pullback in Gold leading up to the Fed meeting. I have been long GLD from $58 with an average cost of under $65. Selling above $89 is prudent . Agriculture is having a phenomenal run as of late with my position in the agriculture ETF DBA soaring. I believe DBA will be one of the best plays for 2008.



Here is an interesting chart courtesy of Headline Charts showing a market sell signal via and S&P 10 week and 40 week moving average cross over. This signal appears to have accurately predicted the Bear market of 2001-02 and the bull market starting in 2003.



If one wants a accurate predictor of where the markets are headed, keeping an eye on what the institutions are doing is key. This chart via Stocktiming.com shows the Institutions are reducing expsoure to equities.



There are 71 technology stocks in the S&P 500. Not a single one is above its 50 day moving average. This chart below from Bespoke Investment is incredible to look at.







Yahoo is the only S&P tech stock up this year ( as of this morning). Amazing. This can be looked in 1 of 2 ways. Either tech is oversold and a great buy here or tech is weak and will continue to get weaker. I personally believe tech will continue its downtrend though the above tech names could all rally in the next week or 2 towards their 50 day MA. Hence I am long QLD which is a bull ETF modelled on the QQQ x 2 . Since the Qs are mainly tech stocks, I believe a tech rally can be played best by utilizing QLD though some would argue ROM is better since its a bull tech sector ETF. ROM however does not have enough volume for my liking. Too illiquid for me.

WHAT DOES KUDLOW SMOKE ?

Watching Kudlow and Company here. You really have to wonder what Larry Kudlow and some of his guests are smoking. I thought I heard someone say how great they thought financials would do the rest of the year. This Don Luskin fellow thinks the stock market does well during recessions. Wow ! He's obviously on Ecstacy - the club drug. Larry Kudlow is dressed like a clown and everytime his mouth moves, a steaming pile of horse turd is released. This Doug Kass person is the only one who makes remote sense. Luskin, Kudlow and this other older guy are either drunk or very high. The other day Kudlow had Ben Stein as a guest. Ah the same old Ben Stein who reminds me of a crew member aboard the Titanic telling people to go back to bed and not worry while the ship sinks. These fools continue believing everything is fine. The problem with these idiots is they are so out of touch with the reality that millions of Americans face on a daily basis. I mean how much can Ben Stein know about the average American when he lives there in his $20 million Malibu mansion ?

DON'T BET AGAINST ANGELO

Or any other tanned Italian men in general. Looks like Countrwide may be saved via rumors of a takeover by Bank of America. If this is the case, than look for a strong market rally especially in the financials. A short term bottom appears to be in place. BAC injected $2 billion in Countrywide back in mid August which also market a market bottom. I expect the markets to continue their downtrend in the intermediate term. But a strong rally could develop here and continue till the Fed meeting in late January.

BEN FAILS TO IMPRESS

Judging by the market reaction following the Bernanke speech this afternoon, he didn't bring hope to the bulls. The indices jumped in anticipation with the Dow in triple digits. Those gains evaporated soon after. What is Ben supposed to say or do ? Staving of a recession at this point is a highly unlikely scenario. Cutting rates further will only be inflationary. It won't save the markets or the consumers. The Fed should just stay put and not cut rates any further. It will only lead to stagflation - slowing growth with rising inflation.

The plus side is the spikes in gold and silver. GLD and SLV are looking pretty today. I can't help but feel commodities will be the way to go in 2008 as every rate cut only leads to further spikes in commodity prices. Gold and Silver along with agriculture could easily rise 30% or more in 2008.