MON. OCT. 20 - LIBOR Is The New Indicator

You’d never know it from all of the gloom and doom out there much less all of the ready-for-Halloween scary stories you’ve been watching on TV and reading in places like, oh, this blog space, but how many people out there realize that last week was the best week for the stock market in over 25 years by Tuesday (before it sold off dramatically thereafter)?! As usual, the market does anything possible to defy the beliefs of the majority so of course the worst week in 70-some odd years has to be followed by the best week in five years (despite the mid-week swoon). What caused last week’s rally other than the basic ‘stocks got cheap’ tagline? What happened was that the credit market eased. Barely (which will be the second theme of this article), but it is eased. Overnight LIBOR rates fell every single day last week which is an exceptionally good sign. The commercial paper market began freeing up a little as well. So, basically, it indicates that people and banks are lending again. Thus, the course of the next week or two during this busy time of the quarter- earnings season- is not the earnings for once. Rather, traders will be honed in the rapidity (or lack thereof) that the credit freeze thaws. If LIBOR spikes higher for whatever reason (particularly as some people assert the declines have been artificial as discussed in today's ("The Wall Street Journal" for instance), last week’s gains will be a distant memory by week's end if not well before. However, if the crisis eases, money managers will begin putting some cash back in while analyst’s pump out volumes of recommendations as to why stocks are cheap. More than ever, day traders must follow the macro while trading the micro.

Markets throughout the rest of the world rallied overnight as LIBOR continues to fall. Futures are up state-side and with no major news out there, the markets will likely maintain an A-B-A2 bias to the upside as the morning progresses. There was a late sell-off on Friday so with Europe in particular padding Friday’s gains, it would stand to reason that gains should hold much of the morning.

Trading will be tricky for a chunk of the morning. News flow is relatively light, volumes will be lower, and prices higher so the possibility is there for a mini-algorithmic slow and steady short squeeze. Thus, there is a relative dearth of ideas this morning yet the main thinking is that things will pick up as the morning progresses with a particular focus to buying real strength if the market maintains its backbone or selling what is particular weak in case the sell-off reasserts itself.

Reiterating-If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified


Good-

CIT- very strong into close on Friday; looking for A-B-A2 if it opens above unch preferably using 4.85ish as an entry point above Friday’s high

WFT- good earnings

EDU- good earnings

HAL- good earnings

MRK, UTX, WSO, MDRX – all on Cramer’s show on Friday

Bad-

C- closed near a low quite suspiciously on Friday.

ITRI- could not get a bounce after Thursday’s horrible decline; would short below 57.10 if market weakens

WERN- exhibited a reversal Friday after posting before Thursday’s trading

PNC- notably weak among the banks; look to short thru Friday’s 57.42 low if market weak

TMK – very weak Friday; looking for A-B-A2 to downside off of open if market weak

Earnings list:

MON OCT 20 BEF

BPOP EDU ETN

HAL HAS LMT

MAT MMR NFLX

NVS WFT


MON OCT 20 AFT

AXP BRO BXS

CAVM EFX HXL

LNCR LOGI LRY

NBR PKG SNDK

TXN


Good luck today.

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