Griffin Account Talk

[Griffin]

Everything says it's reasonable to expect the market to correct a couple of % over the next couple of days and the right moves could capture all of it. I'm not in the position this week to play (more then likely, I'll be on a plane at the buy back point) so I am going to stay put.

View attachment 1496

 

[Griffin]

Today's sell off is being triggered by sub-prime mortgage lending concerns again (according to the talking heads....but the charts were telling most people it's time to sell....personally, I listen to the charts). This sub-prime concern puts the Fed in an interesting situation. How much responsibility does the Fed have towards these financial institutions? If the CPI and PPI numbers come in inflationary, should the Fed hike knowing that could be the "nail in the coffin" for many of these institutions. Given that most of the lenders are already on the edge, is it enough to hold the rate steady to send more sub-prime lenders to Davey Jones locker?

Although they won't be as crass as I have been, this is going to be the meat of the dicussion that will drive this market through next week and into the Fed. I belive this is the story to watch.

Comparing this to May yet again. In the months leading up to that correction, the market was trying to force the Fed to halt rate hikes and it took a couple of months after that correction before that happend, now the market is trying to force the Fed into a rate drop. I see a rate hike as just as likely as a drop at this stage of the game. What that tells me is that the market is going to price in another no-action event. Therefore, as long as the CPI and PPI numbers are not extreme, then the market will likely fluctuate sideways for the rest of the week. This will give us enough time for the bulls to pump the goldilocks story through the market in time for a positive reaction to the no-action Fed next week.

I see a volatile week with some more red in it for tomorrow and into Thursday (this sounds like a weather report) mixed with a little green and possible some big green on Friday and/or Monday in anticipation that the building data will show that the sub-prime problem is relatively isolated to the financial institutions. This sets us up for the Fed policy statement.

I expect a successful retest of the lows and do not anticipate significant further action to the downside. If I was out, I would be moving back in soon (probably tomorrow). This is why I'm not real concerned about today, but it certainly would have been nice to have made the play. Congratulations to those that pull this one off.

 

[airlift]

Griffin,
I always enjoy your incisive analysis. Thank you!

 

[ATCJeff]

Today's sell off is being triggered by sub-prime mortgage lending concerns again (according to the talking heads....but the charts were telling most people it's time to sell....personally, I listen to the charts). This sub-prime concern puts the Fed in an interesting situation. How much responsibility does the Fed have towards these financial institutions? If the CPI and PPI numbers come in inflationary, should the Fed hike knowing that could be the "nail in the coffin" for many of these institutions. Given that most of the lenders are already on the edge, is it enough to hold the rate steady to send more sub-prime lenders to Davey Jones locker?

Although they won't be as crass as I have been, this is going to be the meat of the dicussion that will drive this market through next week and into the Fed. I belive this is the story to watch.

Comparing this to May yet again. In the months leading up to that correction, the market was trying to force the Fed to halt rate hikes and it took a couple of months after that correction before that happend, now the market is trying to force the Fed into a rate drop. I see a rate hike as just as likely as a drop at this stage of the game. What that tells me is that the market is going to price in another no-action event. Therefore, as long as the CPI and PPI numbers are not extreme, then the market will likely fluctuate sideways for the rest of the week. This will give us enough time for the bulls to pump the goldilocks story through the market in time for a positive reaction to the no-action Fed next week.

I see a volatile week with some more red in it for tomorrow and into Thursday (this sounds like a weather report) mixed with a little green and possible some big green on Friday and/or Monday in anticipation that the building data will show that the sub-prime problem is relatively isolated to the financial institutions. This sets us up for the Fed policy statement.

I expect a successful retest of the lows and do not anticipate significant further action to the downside. If I was out, I would be moving back in soon (probably tomorrow). This is why I'm not real concerned about today, but it certainly would have been nice to have made the play. Congratulations to those that pull this one off.

Remember the Financials lead the market. If this spills over to the larger financial companies then the market is in big trouble. Remember that someone gave the sub-prime lenders the money to lend? We will see who when we start getting 1st Q earnings report in a few weeks.

I would not put my little toe in the C/S/I right now!

 

[Remo]

Didn't one of those Financial companies give 900+million to the firm that's close to bankruptcy? Oh boy...

 

[nnuut]

Remember the Financials lead the market. If this spills over to the larger financial companies then the market is in big trouble. Remember that someone gave the sub-prime lenders the money to lend? We will see who when we start getting 1st Q earnings report in a few weeks.

I would not put my little toe in the C/S/I right now!

I really don't think this is going to be pretty! Think I'll draw my money out and keep it in a jar buried in the backyard

 

[Griffin]

I moved over to the F fund from the G fund. The ten year note is making a little pop today which should drive down the F. The market always goes into these Fed meetings at the point of equilibrium between those that think the market will react positively to the Fed and those that don't. The two components of this process are:

1) what will the fed do (which includes any changes to the language) and

2) how will the market interpret 1)

Since you can never be 100% sure of what the Fed will do or say, there is always some speculation built into that part of the equation.

After seeing the market react unfavorably to the "not-to-bad" news of the CPI and PPI data, I expected the market to drop to the bottom of the channel going into this meeting. The expectation being that if the Fed held rates you would see a pop, but if they got hawkish in there tone or actually raised rates, you would see a sell off and we would have to find a new low (again...for the fourth time in as many weeks).

Usually the day before the Fed is fairly stagnant, so we are seeing the market set up for the Fed meeting today, and my expected drop is certainly not happening. Oh well . The setup almost always takes the market to the top or bottom of the "critical channel"...this is the decision point to breakout or breakdown that is typified by that equilibrium point.

This means the market is moving to the top of the "critical channel" so the logical question is will it breakout or breakdown?. Going back to my two points:

1) I expect the Fed to neither raise or lower rates, but I can see a slight change to policy statement in the hawkish direction, with a caveat about sub-primes and that it is not the Fed responsibilities to bail out the sub-primes....they may even suggest tightening banking regulation. The Fed is still more concerned with inflation then worrying about a recession. The Fed will be quite happy with a soft landing and I think that is what they see happening and are not inclined to add anything that would resemble economic fuel.

2) The market will not see this favorable and those that are thinking that the Fed is overdue for a rate decrease are going to be disappointed.

Net result, I think the market will give a collective "hmmmm" and take a breather. The "breather" will lead to a small sell-off. I think the buy in point will be shortly after the meeting (probably the next day).

 

[ChemEng]

I was contemplating a move to I today (trying to catch a bit of the bounce from today) then into F tomorrow. Moving into F today makes alot more sense... Thanks Griffin!

 

[Griffin]

I was just reading Fundsurfer's post. Although we always seem to never quite agree, usually we are fairly close. I like that because we think alike but our view points are different enough to provide some counter balance.

Today is a little more unusual in that we are saying exactly the opposite. I guess that goes to show my point about equilibrium points. Anyway, here's my chart and this probably explains why I'm staying out. Both are of the S&P 500, the top is a one year chart the bottom is a 10-day intraday chart. 1400 is the critical level......how the market reacts to this line is the key.

Keep in mind, this is not an argument against FS, in this game, who's wrong and who's right, is a matter of time....we both may be right, but one of our timeframes is wrong...that's what makes this game so tricky.

View attachment 1511

 

[FundSurfer]

Paralysis by analysis.... Part of me also want to sell green... What to do...

I was just reading Fundsurfer's post. Although we always seem to never quite agree, usually we are fairly close. I like that because we think alike but our view points are different enough to provide some counter balance.

Today is a little more unusual in that we are saying exactly the opposite. I guess that goes to show my point about equilibrium points. Anyway, here's my chart and this probably explains why I'm staying out. Both are of the S&P 500, the top is a one year chart the bottom is a 10-day intraday chart. 1400 is the critical level......how the market reacts to this line is the key.

Keep in mind, this is not an argument against FS, in this game, who's wrong and who's right, is a matter of time....we both may be right, but one of our timeframes is wrong...that's what makes this game so tricky.

View attachment 1511

 

[FundSurfer]

It's always good to look at your intra-day charts and compare them to my COB charts. There is a lot of resistance to going above the bounce point. I'll be glad when we break that resistance. Today's move is too high too fast. I think the big boys are squeezing shorts today. This could be followed by profit taking this afternoon. Time will tell.

 

[Griffin]

This is from Yahoo's market update at noon

"Stocks are trading at session highs midday as a wave of encouraging M&A news provides some validation that stocks may have found a short-term bottom, prompting a broad-based rally. The Dow, S&P 500 and Nasdaq are up 1.1% on average; all 10 sectors are noticeably higher."

they also said at 12:30

"Not much has changed as traders make their way through the New York lunch hour. From a sector standpoint, Energy (+1.8%) still leads the charge, but a 1.2% advance in the beat-down Financials sector is providing the foundation for today's rebound."

Financials are leading the charge away from the short term bottom? Sounds a lot like optimism. I don't think you will get your sell-off today it sounds like a "buy the rumor, sell the news" surrounding the Fed meeting. I think people actually believe the Fed is going to bail out the subprimes. Interesting given that Bernake has already said that Fannie mae and mac should be the government's instrument for affordable housing.....and we have housing starts tomorrow at 0830.

It's always good to look at your intra-day charts and compare them to my COB charts. There is a lot of resistance to going above the bounce point. I'll be glad when we break that resistance. Today's move is too high too fast. I think the big boys are squeezing shorts today. This could be followed by profit taking this afternoon. Time will tell.

 

[tsptalk]

I think the big boys are squeezing shorts today. This could be followed by profit taking this afternoon. Time will tell.

That and there is a lot of money on the sidelines based on the Rydex ratio and sentiment surveys. Lots of fuel for a quick rally as the fear of missing out kicks in. It seems to be very curious action in front of the Fed who could quickly burst the bulls' bubble. But they could also add fuel to the rally. A little risky for me but I will be willing to chase if I have to if the Fed is friendly and the climb isn't too steep.

 

[Griffin]

I think the big boys are squeezing shorts today. This could be followed by profit taking this afternoon. Time will tell.

FS,

Are you still chalking yesterday's action up to the shorts getting squeezed? The volume was lighter then usual so the conditions were ok to make that happen. (as of late, the volume has been incredible high on average, so even yesterday would have been somewhat of a challenge). If that was the case, then I would expect the big boys to be satisfied that by the end of today that they had cleaned enough clocks to allow a sell-off.

With today's housing data, I think it is fairly safe to say that the sub-prime problems are relatively isolated. Since they passed some of their debt off to other institutions, I can see their troubles extending to some of the larger financials, not to the extent that those fail, but enough to hurt earnings. I am more inclined then ever to believe a rate drop is not in the cards for tomorrow. How will that be percieved?

12% went to the C-fund today, and I have to admit, I am highly inclined to follow. I know when I have my hot streaks they tend to last for a couple of months. You know how it is - when your hot, your hot and 12% is smokin.

On the other hand, if you go back to May's pullback, we are set up exactly like we were before we got the second push down. Slow sto, MACD and PVO all look just like 2 June 2007.

 

[FundSurfer]

Yes, I think the big boys played with the low volume market. It is easier for them to manipulate low volume. Their computer models take that into account. Many people were looking for a post expiration Monday drop so probably many day traders started short. Big's anticipating this, bumped the markets early which sent shorts quickly to cover. Then flat.

Could also have been a rumor that moved the market.

I tend to agree with the sell off scenario in the 1-2% range over the next couple of days. Looks like we are bumping against resistance right now. If we go through resistance, I'll change my mind. I'm thinking the Fed does nothing but bluster and we have a sell the news reaction.

 

[Griffin]

Yeah, I dig the sell off scenario too....and the ten year note could take a nice dive popping the F-fund. I'm staying put (100%F).

 

[Griffin]

So it turns out I was dead in the ^&& wrong on the market's reaction to the Fed. On 2 June 2006, I was sitting in the exact same boat we were in a few days ago and at that time I moved into stocks. The market subsequently lost 4%. I am now 0 for 2 on picking the bottoms of these corrections. That useful info that I'll tuck away for later. Following that event, I decided I would rather have missed the 4% gain then take a 4% hit. The sting from that move is what was influencing my decisions this time aorund and I am exactly where I was before this correction started.

I say all this because, it is a useful lesson learned. Time to hit the reset button on my approach to this market and remember that what happened yesterday should not influence your position on where you will be tomorrow....what's done is done.

With that said, we now have had three solid days of green and the market could use a breather. From a multi week perspective, the next cycle of the market will be extremely tellling. If the market pushes to new highs, I will interpret that as the market having confidence that the Fed will steer clear of a recession and possible even an economic slowdown. If not, we may be in for year of cycling down similar to 2004 following the big run-up of 2003.

In the immediate future, the dollar index is close to some very long term support and I would expect that we will see that trend reverse. I also expect the market to maintain elevated levels of volatility in the near future. This could be good for big caps as investors move towards stability.

 

[FundSurfer]

In the immediate future, the dollar index is close to some very long term support and I would expect that we will see that trend reverse. I also expect the market to maintain elevated levels of volatility in the near future. This could be good for big caps as investors move towards stability.

I've been noticing that as well and been steering clear of I-fund as a result. I'm thinking we may see the dollar index drop below $82. International problems can also pop up at anytime and take the dollar significantly higher as people flock to the safety of the US dollar. Kind of puts the risk of dollar movement against you. Room to move higher much easier than lower.

Thinking of your recovery theory that you brought out last year after May/June drop, wouldn't S-fund be the next fund to likely see most movement next? S-fund appears to have more room to catch up than C or I.

 

[ATCJeff]

I've been noticing that as well and been steering clear of I-fund as a result. I'm thinking we may see the dollar index drop below $82. International problems can also pop up at anytime and take the dollar significantly higher as people flock to the safety of the US dollar. Kind of puts the risk of dollar movement against you. Room to move higher much easier than lower.

Thinking of your recovery theory that you brought out last year after May/June drop, wouldn't S-fund be the next fund to likely see most movement next? S-fund appears to have more room to catch up than C or I.

I disagree. I see the dollar moving back up above 83.

 

[FundSurfer]

I probably wasn't as clear as I should have been. At max I'd see a drop down to $82. I think the dollar is more likely to go up than down, so I'm in agreement with you Jeff.