While You Were Sleeping…

Bill Cara's Morning Call (Blog)
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By Bill Cara | 27 November 2009

[6:00am ET] While America was enjoying their Thanksgiving Day holiday, the rest of the world was at work selling stock. The headlines today will put the blame on (i) Dubai's financial troubles, (ii) Japan's economic predicament, (iii) the tumbling oil price, (iv) U.S. Dollar struggles and soaring gold, and/or (v) whatever words are felt needed to gain readership. What Americans will not be told is that the 'special loans' departments at Humungous Bank & Broker (HB&B) are working around the clock to "protect the assets of the bank".

News Flash

In other words, while Americans yesterday were enjoying their game of football and planning their Black Friday shopping day, they should have been focused on a different game, the biggest game— where fantasy is being matched against reality— the one that resulted in Black Monday 1987. Yesterday, I opined that HB&B's collapsing share prices was "serious". That word had meaning. To follow up, I can now report that the shares of HSBC, the western world's biggest bank, plunged -7.59% in Hong Kong (see ticker 5 on the Hang Seng Exchange). The shares of the biggest bank, Industrial and Commercial Bank of China (referred to as ICBC or ticker 1398 on the Hang Seng) dropped -5.3%.

Yesterday, I wrote, "Banks from all over the world, everywhere I look early this morning, from Australia, China and Hong Kong, India, Greece, Italy, Portugal, Spain, France, Germany, UK, Ireland, and Russia, are watching their share prices pull down equity market indexes. This is serious". I went on to tell you that "over the past four weeks on the NYSE, the Financials (XLF) are the worst performing sector" and that in the past ten trading days, the shares of JP Morgan (JPM), UBS (UBS), Morgan Stanley (MS) and Goldman Sachs (GS) "have fallen between -5% and -7% each".

I didn't pull any punches when I told you what I really think:

"So the big question is why are traders dumping their bank stocks? I suspect it's because Pinocchio's nose can only grow so long. You asked: 'Where's the Bull in these banks'? There's your answer. The bank hype in the 'run-up' has been mind-boggling. The reality is quite different… It seems no one who ventures onto the stage at Tout TV will talk about the negative yield of U.S. T-Bills, but the credit system is a mess [[and growing increasingly worse so: normxxx]]. "Credit is not being extended and now, in letters to prime customers in many countries, borrowing rates are starting to be lifted. The banks say 'their costs are rising'. Isn't that interesting! … From a wider view, traders suspect there will soon be more banks like Lehman unless governments continue to save them, and with gold now almost $1200 per ounce, how much more money printing can go on? … You know; even Pinocchio dreamt of becoming a real boy. Alas, in our world it is time everyone face the truth."

With one day added to the clock, I will repeat yesterday's closing remarks: "Many of you were indulging yesterday, hoping to trim back today. Remember; the market is us". Is there hope your portfolio will make it intact through the year-end holidays? Judging from the post-opening reaction in Europe today, that may just be a possibility. After a razor sharp lower opening gap and knee-jerk response from the Interventionists, the UK and western European equity markets are holding flat at 5:45am ET. My monitor is presently showing Royal Bank of Scotland and HSBC have been goosed +4.47% and +2.44%.

So you can hope. Isn't that all you have at this point?

What you need to pray for is yet more international central bank money printing to: (i) buy up a large portion of Dubai's $60 billion defaulting debt, (ii) give support to Japan's crisis-ridden exporters, (iii) allow HB&B friends & family to lift the oil price by 8 to 10% despite the fact there is currently a glut of supply, (iv) purchase the record offering of Treasury debt being issued this week so that the Fed (i.e., the U.S. taxpayer) doesn't have to do it, and (v) provide funding for miscellaneous purposes like the U.S. state government defaults, $900 billion for U.S. healthcare "reform", benefits and emergency bail-outs to 9 million or so desperate Americans, and on and on. That should patch up the cracks in your Super Bowl.

Isn't it interesting that just ten months into the White House, America's most popular ever president is standing today in the polls at 48%, and plunging, while his "Tim will be terrific" Treasury Secretary Geithner is now openly exchanging personal attacks with his critics during Congressional testimony, and pundits are demanding his resignation, to be replaced by yet another Teflon Bankster from Wall Street. Is Wall Street the Yellow Brick Road? Gold this morning is down -$24. Were the goldbugs the last ones to leave the dance floor or will the music continue?

My, this can get ugly. I have never seen anything like this.

For the past couple weeks, I have posted S&P 500 support and resistance levels. You have to respect those levels. Almost three weeks ago I opined, "Same parameters [as a week earlier] hold for next week; S&P over 1080, say, is a caution signal for shorts, while, on the other hand, breaking below the early October intra-day low of 1019 means the Bulls should pull in their horns". The 52-week high is 1113.69 and the index is now at 1110.63, which is just one-third of one percent from the Bull market cycle high. Was that the peak? If the S&P drops -10% from here, will the support hold, or is this market set up now for a repeat of October 19, 1987? If the level drops below 1080, will the Bulls still cling to positions, hoping for more Intervention?

Today will be interesting; but I suspect the Monday return of so many traders will be even more so.

CTA Trading Desk Report

A few short notes on the holiday shortened trading session;

• Didn't the Dubai news hit the news wires Wednesday morning?
• 60 billion may not sound like much in these days of trillion dollar annual budget deficits, but with 100s of trillion of derivatives floating around, a small pebble can cause a lot of ripples. Remember that the massive sell off in 1998 on the Russian debt default led to counter party problems on transactions with Long Term Capital Management— far removed from the scene.
• The Plunge Protection Team (PPT) must have been on holiday, too; otherwise they definitely would have been operating in the market today, lending support to a wobbly market on the biggest shopping day of the year.
• Did the S&P Dec future really rally +31 points off the bottom with the declines leading advances by nearly 6 to 1 at the closing bell?
• Mr. Market has a long memory, and 1080 on the S&P stills remains the battle line for Bulls to defend.
• Gold (GLD -1.47%) and the S&P (SPX -1.72%) traded in tandem today, with precious metals looking vulnerable if equities turn south.
• Although Bulls are probably patting themselves on the back with 'crisis averted', things could quickly get out of hand if any feeble up-tick Monday is met by formidable selling that undercuts today's low. The market advance has gotten very narrow in recent weeks, momentum divergences abound, and fundamentals are not yet supportive of another large up-leg.
• After last year's debacle, money managers may be quick to lock in profits if any other sovereign wealth fund happens to expect similar debt leniency.
• Tighten up stops; Bulls and Bears make money, pigs get slaughtered.

Have Great Weekend.