This Week in Stocks: 8/11 - 8/17/07

[350zCommTech]

That is the key IMO. Only the banks get relief, the people that Jim Cramer is "looking out for" are still loosing their homes. This is a bank bail out and that is all.

Yep, it's a mini bail-out for Wall Street.

 

[Show-me]

Quick question:

Might this have any effect on mortgage rates in the near future? I'm assuming not for right now. The wife and I just made an offer on a home and it would be a nice bonus to go with a lower rate than what we planned for.

No, it will actually make it worst. A fed cut right now(discount or overnight) kills the dollar and sends yields higher as people leave the safety of bonds for higher risk, or foreigners sell our bonds(like China) because the dollar is losing value.

Dollar Link

http://quotes.ino.com/chart/?s=NYBOT_DX&v=s&w=1&t=l&a=0

 

[fedgolfer]

... that's the way I was thinking to play it. Sell once we reach the upper channels in this downward trend. But if we're all thinking like that, is the fix already in? Everytime the markets come of the bottom, the psychology is to sell into the rallies, but as Thunder5 did last year and as the chart shows... the strong hand coming out the bottom is actually the successful contrarian play. The markets scare tactics buck off even the willing bulls. I'm too chicken to hold if we reach those upper levels. Bagholders or Thuder5 it?!

 

[fedgolfer]

Thuder5 it?!

I'm pretty sure I meant to say Pointman72 it. Where did he go? Hope all is well w/ him if he's serving our country.

 

[Show-me]

I think the euphoria of the discount rate is wearing off, at least in my mind. This is a consumer driven economy and the fact remains that the consumer is not being helped when the Discount Rate is cut.

IMO, this is a sucker rally. See ya in the G/F fund.

 

[fedgolfer]

most of the stocks i'm looking to buy are filling their gaps after they gapped open. Assuming many stocks will fill their gaps this AM/early afternoon, do you think smart money will send it higher in the last couple of hours? I'm sure they want a two or three day bull rally/short squeeze? Although if they sense that the retail buyers see this as a sucker rally too, they know they wont sucker in enough longs to make it worth while. If this rally doesn't hold that's also one less trick up Bernanke's sleeve... and he's running out of tricks and fast.

 

[vectorman]

What the Fed has done is inject " hope" into the market play and bring us pass depression. The problems are still out there. But Fed now has shown us that if things do get worst, at some point they will take a pro-active move to try and correct the situation. The Emotion Cycle doesn't include " mistrust" so that brings us back to the funtmentals to base our decision on. Tom said the statement in another post below which might be helpful.

" Something interesting to do is to monitor your own threshold of pain. Take notes for future reference. As I mentioned, it seems as soon as you feel you can't take it anymore, that is when we will get a rebound. Next time we are in this situation, you will have those notes to that tell you how you were feeling and how the market reacted.

It may keep you from jumping out at the bottom next time, or maybe it will tell you to get out because your fears were correct. Whatever it is, this will happen again. These sell offs happen all the time in the market.

If you are out of the market now, write down how you feel about jumping in to a market like this. Are you being patient or are you itching to get in?It may seem silly but you'll enjoy reading these notes down the road. "

http://www.tsptalk.com/mb/showpost.php?p=1409&postcount=7

 

[ATCJeff]

"Sell into the rally mentality - fade the Fed"

-CNBC Morning Buzz-

We talked about this yesterday. The market is changing it's psych. Instead of buying the dips, people are now selling the rallies. Nothing has fundamentally change since yesterday. People are still losing their homes. Housing market is on it's death bed. This discount window rate cut is nothing more then a baby aspirin!

 

[tsptalk]

Emotions are running high, mine included. I went to bed last night with the Nikkei down almost 900 and the Dow futures down 190. I wake up and see +300. It's hard not to be emotional. But we have to play the "what now" game.

The 200-day moving average has acted as resistance this morning as it is where we turned back down on the S&P. As long as we stay below the 200 DMA, look for rallies to be sold by the pros - Not the investors, but the traders.

from www.decisionpoint.com

 

[The_Technician]

U know, all we are seeing are the reprecussions of the massive move by big companies out of the US and into Third world countries.....what it really has accomplished is an unstable situation here in the US.....we have less income and savings to buy with.....so things get over expanded too fast world wise.....


So what's the solution, either, third world displaces US product buying and companies profits increase, or reinvestment in the US becomes the norm for 20 years and your neighbor becomes able to buy product.....in other words, Third world steps up to the plate and the US continues to struggle .......or we reverse the world economy to pre 1980's setup.....and the US wins......

 

[budnipper1]

This should burn just about every short today.

"THE BERNANKE PUT IS BORN"
Aug 17 (Reuters) -
By Doris Frankel

With a big payday just 75 minutes away, the Federal Reserve on Friday dealt a body blow to Wall Street bears when the U.S. central bank orchestrated a key interest rate cut.

The surprise move at 8:15 a.m. EDT (1215 GMT) to lower the interest rate the Fed charges banks came at a particularly critical moment -- August options on the benchmark S&P 500 index were due to settle after the 9:30 a.m. EDT opening.

Later in the morning, the August settlement price for the S&P 500 cash index was pegged at 1,450.11.

Scores of options investors who had been poised to cash in on bets against stock market gains had their profits instantly wiped out as equity index futures surged. When cash equities opened just over an hour later, the S&P quickly shot up 39 points.

Until the Fed's move, a popular position in August 1,450 puts -- providing the right to sell the S&P at the 1,450 level -- was ready to settle for $80 a contract in cash less than 24 hours before the open.

When settlement came in the morning, the contracts were worthless.
"The Fed's move today certainly accentuated the pain that the bears and put buyers are feeling and felt yesterday since mid-session when the Dow turned around 340 points in the other direction," said Jon Najarian, co-founder of Web information site optionmonster.com, referring to the late rebound in U.S. stocks on Thursday.

"So that means for call buyers a windfall, since the S&P 500 opened higher and a horrible opening for put owners as many of these August puts went to zero overnight," Najarian said.

BEARS RUNNING WILD
Bears had been running rampant in the options market for weeks, capitalizing on the return of volatility as many investors have been gripped by worry that widening trouble in credit markets would hurt the economy and corporate profits.

On Thursday, an all-time high of 23.7 million options contracts changed hands across all the U.S. options exchanges. Of those a record 13.6 million, or 57.4 percent, were puts, according to the Options Clearing Corp.

Puts give the holder the right to sell a security at a preset price by a certain date, whereas calls give the right to buy the underlying asset at a set price in the future.

The Chicago Board Options Exchange's implied volatility index, or VIX, surged to its highest in nearly five years on Thursday as stocks initially tumbled by 2.5 percent or more before staging their late recovery.
The VIX, Wall Street's main barometer of investor fear, measures projected stock market volatility embedded in S&P 500 option prices.
It had been rising, reflecting a huge demand for options as global stock markets convulsed and investors sought protective hedges or bet actively on more declines in stock prices.

By late Friday, the VIX had eased 2.72 percent to 29.99, as U.S. stocks surged on the Fed action. The S&P 500 ended the day up 2.46 percent at 1,445.94.

THE BERNANKE PUT IS BORN
Some investors are convinced the Fed was deliberate in picking August options expiration day for its move.

"It wasn't a coincidence that the Fed moved today on expiration," said Kyle Rosen, president of Rosen Capital Management, a California-based options hedge fund.

"They used the options traders to further boost the market, because (August) S&P options settled at today's open and that created a tremendous amount of short covering, since so many people sold over the past week," Rosen added.

August options on individual stocks expired after the bell on Friday.
"This proves that the Fed chairman (Ben) Bernanke knows the markets and how they operate better than anyone had given him credit for," Najarian added. "By waiting until the 11th hour at options expiration morning, he boosted the market and changed psychology dramatically."

The move spurred talk that Bernanke had given birth to his own version of the so-called "Greenspan put" -- the notion that the Fed will rescue sliding markets and bail out investors who'd made some bad bets.

"It appears the Greenspan Put is now the Bernanke Put," Merrill Lynch derivatives strategist John Davi said in a daily research note on Friday.
http://www.reuters.com/article/marketsNews/idUKN1744982120070817?rpc=44&pageNumber=1

 

[Rocky]

the 1998 chart certainly leads one to believe that we could have a double bottom in the next few weeks. However this looks like a very slippery slope. My own impression from personal conversations and some articles about variable rate mortgages leads me the believe that there are an awful lot of middle-class families that are not only having difficulties paying their variable rate mortgages, but also have the double monkey of higher property taxes, because of recent city and town reassessments. To make matters worse, college loans and credit card debt put many of these families in a financial vice. Even though most of these people are two income earner families I believe they are worse off financially than their counterparts, 30 years ago when most families, had only one income earner.The Federal Reserve can bailout the banks, but who is going to bail out the middle class? We may be on the brink of a recession, but worse then a recession. Corporate America in the end may turn us into a Third World country. We now find ourselves unable to use home equity as a means to fund our American lifestyle. Most Americans have very little in savings. They are depending on 401(k)s and IRAs to fund their retirements, since defined pension plans have gone the way of the dinosaurs. Can someone please explain to me where all this money will come from to drive the stock market to newer and newer record highs?
where will the money come from to rebuild our infrastructure?
where will the money come from to secure Social Security and Medicare?
where will the money come from to build a larger military to defend against terrorism? It has taken me 37 years to be totally debt free. Most people would say I'm in excellent financial shape.They wonder why I don't retire.I don't retire so I won't be at the mercy of taxus and medical expenses I can't control. I definitely don't want to be at the mercy of a government that doesn't seem to have any idea what fiscal responsibility is.

 

[Show-me]

http://www.briefing.com/GeneralCont...or&ArticleId=NS20070817165158AfterHoursReport

Weekly Wrap

Last Update: 17-Aug-07 16:51 ET

Despite a sharp rebound on Friday, after the Federal Reserve cut its discount rate, the major averages finished another turbulent week lower.
Stocks have traded in extremely erratic fashion over the past few weeks, with the the Dow Jones Industrial Average consistently showing triple-digit swings and the S&P 500 recently falling more than 10% below its peak – the definition of a market correction – before paring its losses. The volatile trading follows a period last month when both the S&P 500 and Dow saw record finishes.
The Fed's move on Friday to change its discount rate – the rate at which it lends funds to banks – from 6.25% to 5.75%, however, was a welcome relief for investors and helped calm the global markets amid signs that credit was drying up. To be sure, it saved the market from posting more sizable losses for the week and served as a welcome confidence boost.
The decision to cut the discount rate was especially notable since the Fed showed concern about the turmoil in the financial markets and stated that it is ready to help support overall economic growth if necessary. In other words, if it is necessary, the Fed will cut the fed funds rate, which it left unchanged at 5.25%.
The timing of the Fed's action was also notable as it followed in the wake of an alarming announcement Thursday from Countrywide Financial (CFC) that it had drawn down the entirety of its $11.5 billion unsecured credit facility to supplement its funding liquidity position.
Incidentally, Countrywide's news fueled a 300+-point drop in the Dow at one point on Thursday, before a furious short-covering rally in the financial sector late in the session brough the Dow all the way back to virtually unchanged for the day.
It didn't appear as if there would be any follow-through early Friday, though, as a global market sell-off, led by a 5.4% decline in Japan, had investors on edge. When news of the Fed's action broke, though, the tone changed dramatically and stocks rallied out of the gate. The indices didn't close at their highs, but they finished the week on an upbeat note.
In other developments this week, the Commerce Department on Thursday showed that July housing starts fell 6.1% to a 1.381 million annual rate as builders continue to struggle with the housing downturn. That was down nearly 21% from the year ago level and marked the slowest pace since January 1997. Homebuilding stocks, not surprisingly, remained under heavy selling pressure.
Wal-Mart (WMT), meanwhile, posted disappointing second quarter results and offered a bleak outlook for the remainder of the year, exacerbating concerns about consumer spending. The retailer attributed the disappointing performance to pressure from the housing market.
In turn, Home Depot (HD) reported its first quarterly sales decline in more than four years due to the housing slowdown, while mortgage REIT Thornburg Mortgage (TMA) said it will delay its second quarter dividend payment due to significant disruptions in the mortgage market and a subsequent increase in margin calls from creditors.
On the economic front, the July CPI inflation data on Wednesday was reasonably good, and in line with expectations. July CPI was up just 0.1%. The core rate was also up 0.2%. Those are reasonably tame numbers that reflect modest inflationary pressures. The July Producer Price Index produced a mixed result with a larger than expected 0.6% rise in total PPI and a smaller than expected 0.1% increase in core-PPI.
--Richard Jahnke, Briefing.com