Traders,
Last week saw the market make the single biggest drop and increase in volatility since last March. We started off the year with consumer optimism and told that the recession is over, however some of the data started to reflect it might not be as a robust a recovery as we initially thought. As we set the bar higher for earnings going forward, it was quickly lowered again as financial firms warned of the pro-long jobless rate and continual fragile economic conditions. However, we seem to move steady along. Then all Hell broke loose, when the Senate race in Massachusetts saw a huge swing and the Republicans captured a Senate seat that had been in Democrat control for almost 5 decades. Even Republicans thought it was going to be a shoe in for the Democrats. After losing the super majority in the Senate and heading into a mid-term the Democrats are in a little bit of a panic mode as the Healthcare reform is still not a lock. Obama came out an first launched the "Fee" (or TARP TAX), but by weak-end he declared he would "fight" the banks if they wanted one. Clearly policy is being driven by politics and when that happens and last minute knee jerk government punitive policies are used to garner approval ratings - we should not be surprised to see volatility inject itself into the market.
I did get lots of email last week, but let me remind you this is not about Democrats vs. Republicans that I have issue with. We need PROPER regulation and the regulators to fore fill their duty, not populist last minute policies to punish one group because one side is losing approval ratings. The problem (as I see it) - it's not the Free Market - it's a combination of government intervention, failure to regulate, and special interest. These are going to be volatile times, in one week we have had so many proposals, threats, and changes that there is no one that really knows what to expect going forward and how much further the government will go in order to garner approval ratings going into the mid-term. That leaves another uncertainty - Bernanke....
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| Bernanke
in or out....volatilty to follow... |
The count-down has started, Bernanke has not been voted in and a recent article shows that the betting line has dropped from 95% to 65%. While he is still favored to get in, the combination of populism and dissension has move more into the "nay" column. I mentioned last year, even when Obama had backed him, that Summers had the president's ear and I wouldn't be surprised if he was working his way into the backdoor. Volker, who was shoved onto the back burner has been getting more face time and his Glass-Steagle type suggestion, which was shot down earlier by Geithner and others, has not been the front-n-center threat that Obama fired last week. While Summers and now Volker are becoming closer advisors, the President can't afford to lose Bernanke as Fed Chairman (even if he doesn't want him). He has openly support him and nominated him. This would be another serious blow if he is not confirmed. However, the President has been transparent in who his economic advisors are and Bernanke is not one of them. Again - another issue driven by politics.
The Whitehouse went into the full-court press over the weekend to try to get the votes for Bernanke's confirmation, as it continues to slip. If Bernanke does not get confirmed it could inject some serious volatility on Jan 31st. While he will still serve on the Fed, he would no longer be chairman and it could open a can of worms as the president tries to find someone to fill those shoes - that could open up another left/right debate.
Odds are on Bernanke and Obama's side - for now. But what seemed a shoe in - maybe a close game that could go into overtime - like the Vikings game last weekend. Anything that goes down to the wire also means the high probability of an increase in volatility.
http://www.cnbc.com/id/35012053 |
| APPLE
a big week! |
Apple is about to unveil their iSlate / iPad - their new tablet. It could still political thunder and Obama would be happy if it did. The release has been highly anticipated and could bring a big surge back into Apple stock this week. There has been so much talk on the internet about it and also the lack-luster release of the Microsoft/HP version. The rumors are going nuts and the stock is already seeing some pretty market buying. It's a big week for Apple - earnings today and the release of their new tablet. Expect some volatility and if it is anything as exciting as the iPhone - with any tailwind from better than expected earnings - we could see this drive higher.
Whatever happens it is a serious overweight in the NDX, so expect Apple volatility to drive the index this week.
Apple Tablet Rumor Page (updated daily)
http://gizmodo.com/5434566/the-exhaustive-guide-to-apple-tablet-rumors |
| Futures Pre-market
Where's the action! |
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The futures are up in the pre-market on the general feeling that last week's sell-off was overdone. Expect a higher opening. |
| Support / Resistance
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INDU 10,000 / 10,250 (We broke the first level of 10,500 and then the 10,250 level - it wasn't looking good and volatility shot up. It looks this morning like we could see a good rally at the opening, but is that too optimistic? Who knows - I think there is more uncertainty to figure out and that means more volatility.)
NDX 1800 (We broke the 1800 level on Friday and that was a key support area. Apple and futures looking stronger in the pre-market. Watch Apple - it will be the driver of this index this week.)
SPX 1090+ (The 1090 level was a support area through November and December. It looks like it might hold this morning as futures are up.)
RUT 600 / 650 (We are holding well off the 600 level - keep an eye on the broader market.)
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| Conclusion
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Earnings, Bernanke vote, Senate super majority lost, Obama's Fee (TARP TAX), Obama's open call for a "Fight" if the bank wants one, and the list continues. It seems like just when we thought volatility may have left the market - at least until the mid-year - is now back in spades. It looks like it could turn ugly and even if Bernanke get confirmed, if he passes by a narrow vote it would certainly reflect a referendum going into the mid-terms. Congress is playing the "screw policy, I need to be re-elected in 2010" card and that means making decisions that are no longer about what is right/wrong, but based on populism. It feels that Obama in his first year, despite all the economic problems, was in command of the situation - however it seems with his approval slipping and the lost of two governor races and now a (supposed shoe-in) Senate seat has shaken the administration and the party. Nancy and Reed are not playing well in the sand-box either and are rubbing the executive branch the wrong way. They can't even organize a secure vote for Bernanke - as the White House had called all their party members this week to try to secure the vote needed - which is still uncertain. What does all this spell ? Uncertainty. Will there be a TARP TAX, will Obama make good on his threats to the Banks, will the Democrats keep control of both houses, etc.
This could be another year of serious volatility and at the core is the monetary policy, which we continue to forget about. While I am not a supporter of Obama's - he is our president and I had one hope - that he WOULD be able to work across the aisle. He has quickly dashed that hope and according to the Economist the polarization in both houses has reached an all-time high. Maybe Obama could learn from both Reagan and Clinton - who both understood the concept of compromise and worked across the aisle and valued the members for serving the country rather than a political agenda. However, I think the core of the problem is really not Obama - it's Congress with leaders like Reed, Frank, Pelosi - who seem to have run AMOK - they can't even garner votes from their own party. You would think with a super-majority and full control of both houses and the executive branch they could ram-rod their agenda - but they can't even legislate out of a wet paper bag without political games, 1000s of pages of pork, and horse trading.
We need a leader to come in and say STOP!!!
Just take a look at the Economist cover story this week - it says it all.
http://www.economist.com/opinion/displaystory.cfm?story_id=15330481 | |
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| Author |
| Michael Williams has 20 years experience as a institututional floor broker and options market maker. He is a partner in both Silexx Financial Systems (a trading software company) and Kinetic Strategic Group (a private investment firm). He co-authored the book "Fundamentals of the Options Market" a McGraw-Hill text and has lectured throughout the country on Options, Risk Management, and Volatility. | |
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