- Market’s initial reaction to the Fed’s characterization of ‘serious risks’ facing the US economy is its second reaction as well.
- A plethora of bad news hammers stocks, other markets.
- Stocks and commodities are now selling together.
- Jobless claims lower, but 423K new people hit the unemployment rolls last week
- China, Germany, France sport lower PMI, the latter showing contraction.
- SP500, DJ30 undercut August lows but recover to hold on the close.
- Market may have overshot downside near term, and rumors of weekend intervention may bring out some short covering Friday.

Market thinks about FOMC statement, confirms it doesn’t like the prospects.

Stocks were administered an old-fashioned tail kicking on Thursday. Combined with the Wednesday losses, it was the worst two-day stretch for the market since the 2008 financial crisis was in full tilt. Investors seemed to react negatively to the Fed’s characterization that the economy was facing serious downside risks. The market was down late on Wednesday after the Fed’s announcement, and futures were in the tank early on. Futures were vastly lower, gapping when I started tracking them around 6:30 CST. They did not improve. The market did try to rally after it opened, but it sold off into the afternoon with SP500 and the Dow undercutting the August lows. A late rebound helped push them back up to basically where they started on the session. Tremendous losses still, but a bit better at the close.

SP500, -3.2%; NASDAQ, -3.25%; Dow, -3.5%; SP600, -2.8%; SOX, -3.5%.

A gut punch across the board. And why not? They seem to be piling up. There were continued worries about what the Fed said with the U.S. facing serious downside risks because of what is happening in the U.S. and elsewhere in the world. On top of that we had several other problems. China is coming out with a third month of lower manufacturing numbers. Germany and France both sported lower PMI numbers as well; indeed, they contracted. You never want to see that, but it is here and we have to deal with it.

Initial jobless claims were falling, but just to 423K versus the 418K expected and 432K the week before. That was revised higher from if 428K originally reported. It is hardly a positive when you have 423K new people showing up at the unemployment office. In the monthly employment report, we net out how many new jobs we have over here and then how many jobs lost over there. It is a joke because each week we see over 400K new people heading to the unemployment line. We are obviously nowhere close to replacing those people with new jobs.

FDX beat on earnings, but it cut its full-year expectations. Fuel costs are higher, and it sees its global shipping business going down. It specifically noted there was a “rapid decline” in China with respect to express orders. That was in Europe as well. It piggybacks on what I said earlier in the week about shipping problems here in the U.S. The truckers saw a peak in February in their freight levels, and they have declined since. Container imports are way down in Long Beach and LA, our busiest ports for imports in the U.S. We have serious problems confronting our economy, and these corroborated what the Fed told us on Wednesday. With this one-two punch (more like a one-two-three-four-five punch given all the bad news), the markets were in no mood to move higher. Indeed, they did not. They opened lower, sold off, and did not look good even with this late bounce. And what about that late bounce? There are rumors that the IMF may be having some meetings as to whether there will be intervention in Europe and other places over the weekend. With that specter hanging out there, some shorts decided it was best to cover heading into the close. That may play a role on Friday.

The market may be a bit overdone near term. This is all bad news, and I am not surprised to see it. I am not surprised to see the market sell off. It could break down below the Summer 2010 tops that it was toying with again on Thursday. With this big decline, however, we may see another bounce first. That may come in the form of short covering on Friday ahead of a week where there could be some intervention. The question is whether we use it to exit upside and enter some downside positions or if we wait until Monday. With this much turmoil and the possibility of invention, you do not want to put too much more money to work. Indeed, after the gaps lower on Thursday, we did not do much at all other than take some gain on some downside positions.

Most stocks gapped down or sold rapidly in the first few minutes to near session lows, and then they sat there all day. That put them down at the next support level. We did not want to sell into that, so we are waiting to see if there is a bounce back up that we can utilize. Thus, trying to decide whether we want to use any relief bounce on some short covering, or if we want to take a chance into Monday. Of course, if it does not happen, Monday could be ugly. I am of the opinion that you take it when it is there, right now, given the extraneous forces working on the market.

FRIDAY

There are a lot of issues to deal with, but they are pretty straightforward. Futures were up after hours, continuing the rebound into the close. There was some decent news out. NKE had good earnings. It beat handily on the top line and the bottom line. It said things look good for it, and the stock was up nicely after hours. Maybe some people will think they were a bit hasty and trigger-happy in selling everything on Thursday based on what the Fed said. We may see something of a recovery. There is also the IMF out there and the possibility of an intervention over the weekend. Intervention means stepping in to provide support, and that means the selling would be curtailed. There may be some short covering ahead of that possibility. It would not be the first time.

This is a world where governments love to intervene every chance they get. They think government is the only thing that can save the world from itself. You know how I feel. Markets work. They only stop working when the government gets in and upsets them and creates imbalances. Then the government points the finger and says it is not working, ignoring the problems it caused. It is like a kid who starts a fire, calls 911, and then gets named Junior Firefighter for helping them put it out. Give me a break. But that is what we have with the government causing problems, blaming the private sector, and then saying they will have to come back and clean up the mess.

No economic data. We have the market trying to recover after hours and the possibility of short covering on Friday. We could use that to step in and buy some new positions to the upside if we feel lucky or the risk/reward is right. I do see some plays after today where there is a decent (and some are damn good) risk/reward with the pullback to a good support level and still plenty of green space ahead to run. I will be looking at those as possible plays we can step into to make some money on any kind of bounce. Betting on an intervention is tough. How many times on a Friday have you seen a little bounce into the close, and then on Monday things just gap to the downside?

If we get a bounce back tomorrow on short covering, do we want to wait and see if it holds over into next week, or get the heck out of dodge? I am leaning to the side of just using it to get the heck out of dodge on the upside positions that have been beaten down and gap down to support. Let them bounce up and then get out of them. Then if Monday turn out upside, oh, well. If not, maybe we can make some downside plays off of that. Some of our downside gapped lower and did not give us a chance to get in. We will see if we get a recovery and they come back up and get near our buy point. If they stall out, we can step into a few more positions to the downside.

I am not planning to do a lot. It will be selective buying here and there, whether upside or downside. If we do anything, most of it will probably be exits out of some upside plays that got hammered and are rebounding if we can get a short-covering rally. That is how we will be looking to play this. Then we will see how it plays out next week. We still have some great downside in play. We may be able to pick up another position or two on Friday if we get a bounce back to the upside. After that, we will look for further downside deterioration in the market. I am not saying that this is good action that will lead to a break to the upside. The fact that SP500 and the Dow held indicates they could do that, but they would really have to overcome the odds to do so.

We will take what the market gives on Friday. If we get an opportunity, we can move in here and there. We will take some downside gain if there is more of a push downside. It does not look like that will happen as of this evening, but a lot of things can change overnight. If there is another push, bank some more gain and then play a rebound. Then if we can get some more downside plays, that is great. If we can get some of those good risk/reward upside plays that make us quick money, we can try that, too. We will just not load the boat with anything on Friday when so much could happen over the weekend.