No Energy Near Support

Weakness is present in every pocket of the market. After opening up around 50 points, we've faded again. I would still be taking off short side bets here as 6 down days in a row seems a bit extreme. Once things clear up FDO and GHL are going to look okay, but patience seems more appropriate right now.

What does the government have left? Not much. Their actions thus far have failed to "prop up the economy", fill the gap in GDP, or stimulate demand. We have more headwinds as well. Demographic conditions will prolong the downturn. Housing prices continue to fall and consumers are making big changes in spending habits.

A long slow downturn and recovery is ahead. The situation has fundamentally changed and significant time is required before things get better.

Fade Not Surprising

The DJIA faltered up 50 which is not surprising at all. Government stimulus hype has now deflated leaving the market weak and vulnerable to news flow. The market's action is really weak as well. Nothing can be sustained on the upside and a retest of the lows seems inevitable now. S&P shorts should be held until the 750-760 level has been hit. Financials are getting burned and the XLF continues to moves lower. That sector seems to be pulling down everything else. Only the most defensive stocks such as TEVA, WMT are surviving.

Merrill is looking at 12x $55 earnings on the S&P leaving the market at 660 this coming fall. I think that is a very strong possibility. What may happen now is we get a slight bounce from the retest and then tread water before going into another downturn a month from now. At best we stay range bound from 750-950. The data is not able to support a move above those levels and consumers/businesses are unlikely to change tepid spending behavior in the face of job losses/lower home/equity prices. Thus, I'd keep short term focused with an eye out for future deterioration.

Sell With S&P Up 10

I'd look to sell and short into this rally for a trade. There isn't much upside here and the market has a significant chance of fading.

Update

GHL rallied all the way from 55 to 70 over the course of last week. DV had a nice spurt but then came off pretty hard. Mid-week it started acting terribly and was down multiple days in a row even when the market was rallying. It couldn't gain any traction at all. LO has started failing after stalling at 62, but I don't think it'll make it back down to it's previous base.

The market is treading water for the most part. The broad market opened lower today, but has been holding firm here and is moving slightly higher with the Nazz actually showing relative strength and holding positive. This will be three down in a row and looks like it may be a good place to buy for a quick trade. It's not breaking lower, so there's a good chance we might see positive today or at least move close to break even on the S&P. A day out doesn't look so bad either.

No Obama Rally; XLF at New Lows

The S&P slid over 5% today while the XLF slumped nearly 17%. Stocks are getting killed on the back of continued economic weakness and poor financial earnings. It looks like the lows made back in November may be tested sooner than later. There were very few stocks that were spared in the beating today, DV, FDRY, TMTA some of them, and oil continued on its path lower as well.

Even the "survivors" are getting mauled. JPM, WFC, and BAC are all down substantially. However, the risks are a bit more balanced now that everything has been substantially trashed and there is a threat of significant stimulus being put out. As far as individual stocks, I'd keep an eye on LO with a bias towards the short side as it rallies to an area where it has previously peaked. DV has been showing relative strength but looks more like a long. GHL on the long side is starting to look interesting too as it comes back down to the 36-37 area. It has shown solid relative strength throughout this entire crisis.

Nancy Havens Likes Arb Spreads

Check out www.bloomberg.com to see Nancy Havens, head of Havens Advisors, talk about her view on risk arb and what she is doing right now. Their original fund has never had a down year, so her opinion is definitely worth listening to. In the video, she seems to really like some situations right now and points to several deals that offer good opportunity. These include CYCL, FDRY, and UST, two of which I mentioned in an earlier post.