Upward Bias; Suprising Resiliance

The tone in the market seems to have shifted in the short term. The market is rallying after breaking its lows and looks to be headed higher from here. I'd look to be buying morning dips in the broad market and take advantage of any 3 down days on stocks like GIS, GHL, and LO. Eventually, we'll likely be lower than we are currently, but the rally seems to have some steam.

Doug Kass Blip

Check out the newest Doug Kass article on www.thestreet.com here.

Here's the most important excerpt in my opinion:

"Consider the following four data points:

1. Six trillion dollars of wealth has been lost in home prices over the last year and a half.
2. Eighteen trillion dollars of wealth has been lost in global equities in only seven weeks.
3. Deleveraging continues to restrict accessibility to credit.
4. Job losses are accelerating.

The Great Recession is now upon us and will be with us for some time to come.

Stocks don't lie; people do.

Throw away your S&P 500 corporate profit estimates for 2009 through 2011, and disregard the economist you watched on CNBC yesterday morning and the other strategists who talk of mustard seeds and a consumer-led recovery next year -- it's pure pabulum.

Stocks will, at times, afford us trading opportunities, but, for the foreseeable future, we will get no satisfaction in investing opportunities.

Only the most facile traders should be on the playing field."

Risk Arb Strategy Outperforms

BUD turned out to be an amazing trade and the deal closed very smoothly. LDG and CVS seems to be a done deal too. Strategic buyers have swept in to buy companies on the cheap during recent market turmoil. However, investors have been skittish about risk arb and spreads have been larger than usual due to general risk aversion and also concerns over deal financing.

But according to this Motley Fool article, risk arb funds have been significantly outperforming this year. I'd look to buy FDRY and CYCL as a bet that these strategic, mid sized deals keep getting done.

ATVI/ERTS

ATVI continues to outperform ERTS. On the day, ATVI is up 1.66% while ERTS is down 2.44%. Since Recommendation the trade has performed well too. ATVI is down 9.7% while ERTS is down 29.4%. ATVI outperformed by 19.7%.

I would look to sell ATVI and cover ERTS here. ERTS is getting killed, but could be in a capitulatory stage. Since ATVI has held up pretty well lately, it could be vulnerable to a bear raid.

Tired Market

The market looks extremely tired and cannot bounce. That's what you call bad news, bad action which is a good tell that the market is heading lower. I've continually called for a break to new lows and it looks like that will happen. Shorting the SPY is a good idea in my view both intraday and for the intermediate term. Markets have been range-bound today and I'd look to short the extremes up (over 100 up on DJIA, up 10 on S&P) as a continuation of that. I don't think we have anything that will propel us higher here, just lower.

Spot On

We've broken to new lows. Not a big surprise from my viewpoint. The facts are just too overwhelming and the Treasury/Fed's resistance is too little. No one is going to step in and be a hero in this market. If you do, you're just asking for your head to get taken off as all the other bottom callers have in the recent past.

Dow Should Moderate

I think the DJIA will likely moderate at some point today from the 100+ gain this morning. I'd look for it to eventually pullback to at least give up about 50 points. The weak jobs report was just another report that was already largely discounted. However, it's enough to give traders pause about rallying straight out. Moderate gains just seem more appropriate than an outright bull rally.

I still think the market breaks to new lows sooner or later. Continued bad news will prick away at market conditions. The fed/treasury has run out of tools and lost credibility (as shown by decline after decline). Lastly, even though a lot has been priced in, it seems like analysts and investors are too optimistic about the time it'll take to recover and the magnitude of the recovery. I expect a longer recession based on declining demographic trends and poor credit conditions. At best we get sub-par returns from here--not exactly an environment to be all-in long in.

Middle of a Trading Range

The S&P is in the middle of a trading range from 850 to 1000 and right now there's more room to the downside than the upside. Accordingly, I'm looking at things a bit more negatively right now due to the run-up we've had and the lack of a catalyst to propell stocks higher. If you look back at days where we've rallied and then had a nice red bar turnaround at resistance points, the following days have not been pretty. Back in September this was the case, as it was twice in October. I'd look for this mornings shallow decline to deepen a bit as the day goes on.

Bad economic news continues to come out. Upscale/Mid-Tier Retailers such as Macy's and Target continue to get hit by consumers trading down to Wal-Mart/Cost-Co and pulling back altogether. But a lot of this has already been discounted (as shown by the gains in many retailers today) making the environment that much more difficult to work through. GDP was negative in Q3, but the market stayed decently strong in the face of that as well.

The global slowdown is in full-effect though and you have to think it'll be hard to continually shrug off these nagging problems. The BOE cut rates 1.5 percentage points this morning. The ECB and Fed are chopping away too. But as it's been shown over the past year, cutting rates does not necessarily lead to cheaper and more available credit. So in the end, you have a slightly more positive near term outlook just because of the indiscriminate negativity and the momentary warming of frigid credit conditions, but also a backdrop that's failing to improve and that is incredibly persistent.

I'm not sure who is brave enough to go out there and start buying. Hedge funds that have gotten burned this year and they are too busy selling to raise money for redemptions. There just doesn't seem like there is any room to rally as investors have adjusted their time horizons and economic data does not improve. One things is for sure: we're not going straight up. It'll take time to work through the problems. New lows are not out of the question, but we're likely in a range for a bit.

Feel Good Rally

The coming certainty of a new president in addition to a more liquid and available short term paper market has led the market higher. A Barack Obama win will probably boost the market a bit more here. Right now we've gapped up 2 bucks on the SPY. It should fade back towards the 50 minute moving average. The rally may continue from there or could slump. Obviously, I'm looking for it to move higher. However, now that we're moved up so much I'm concerned about the potential upside on more than an intraday basis. There is resistance above and the market may very well be tired. CEC is exhibiting poor relative strength and should be sold.