Monday, October 22, 2007

Day-Trading with the Fed

Every day, investors take risks.

Implied in the buying and selling of stocks is the gamble that shares of the stocks in question will go up or down, lose or gain value, based often on little more than the whims of the market.

However, it's a rigged game. The Fed routinely pumps money into the markets through their daily repurchase agreements, or "repos" as they're known. Today's "fun money" - $10.5 billion - arrived precisely 10 minutes after the market had opened, just in time to stave off a massive sell off which had the Dow down more than 100 points right out of the gate.

As the day wore on, the effect of this "money out of thin air" had on the psyche of the market was apparent. The Dow took a nearly 200-point round trip, eventually ending the day with a gain of 45 points, ending a five-day losing streak.

Dow 13,566.97 +44.95; NASDAQ 2,753.93 +28.77; S&P 500 1,506.33 +5.70; NYSE Composite 9,930.78 +10.51

So, effectively, the Fed took most of the risk out of buying stocks, for today, at least. Tomorrow, and the remainder of this week and next, is likely to be more of the same stumbling around we've experienced for the past few months.

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The market direction is predominantly to the downside, though Fed actions have prevented the essential shakeout to occur in all its fury. Instead, we get the slow motion train wreck with the occasional pileup like we had on Friday.

Stocks really were weak at the open and actually for much of the day. Advancing issues only led decliners by a 7-5 margin, while new lows dislocated new highs, 420 to 94. So, if you're convinced the worst is over, think again.

Oil dipped $1.04 to $87.56, a price so gaudy and absurd that it's painful to print the actual number. Gold lost $8.40 to $760.00, yet another sign of the credit-to-cash trade. Silver dipped 8 cents to $13.56 amid continuing commercial supply-demand usage debate.

Today's market gains were purely Fed-inspired and can hardly be called sustainable into the remainder of the week.

Nearly a third of the S&P 500 components will report their quarterly results this week. More than 25% have missed profit targets, many of which were supposed to be easy marks.

After Monday's close, 36 companies will report their earnings including Apple (AAPL), American Express (AXP) and Texas Instruments (TXN).

There are 71 companies reporting their earnings prior to Tuesday's open.

The off-balance-sheet fraud inspired by Enron has now spread fully to the banking system. The credit crunch has severely damaged the world economic racket and the banks can do nothing other than hide the losses for now. At some later date, probably some time in the first quarter of '08, those losses will see the light of day and the end-game will commence.

NYSE Volume 3,310,854,000
NASDAQ Volume 1,923,987,125

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