The calm before the storm.

by Larry Levin

If you missed the first 40-minutes of the morning trade, you missed the meat of the move. From then on through the close, the S&P traded in choppy range bound action as traders wait on tomorrow's FOMC announcement. This morning's strong advance was due to a combination of news from UBS, MBIA, housing data and of course tomorrow's big announcement. UBS reported a shockingly large $10-BILLION write down due to poor US investments. "Conditions in the U.S. mortgage and housing markets have continued to deteriorate, and we have updated our loss assumptions to the levels implied by the current distressed market for mortgage securities. In the last several months, continued speculation about the ultimate value of our subprime holdings -- which remains unknowable -- has been distracting," said CEO Marcel Rohner in a statement. The huge loss reported today as well as "Which remains unknowable" is the setup, and the punch line is: UBS stock rose +2.34%. I had a good laugh about that today (while scratching my head in wonderment) and then simply thought, "Maybe this means the worst is behind us?" Only time will tell.

The other surprise this morning was from MBIA. It announced it would get a $1 billion investment from private-equity firm Warburg Pincus in an effort to shore up its capital. This led to a huge 13.2% gain as investors believed this will preserve the MBIA's AAA rating. This in turn led to huge gains for other bond insurers.

The National Association of Realtors reported this morning that its gauge of future home sales increased 0.6% in October, the second consecutive rise. Although this is good news, is it sustainable? I am more inclined to believe it's a short term blip - nothing more.

And finally, we traded higher in the pit today (and all indices) because of tomorrows expected rate cut by the FOMC, which is keeping a healthy bid under the financials. Most of the guys I trade with and others in the business are expecting a 50-point basis cut. Some are expecting a 25-point cut, but I am inclined to agree with the former. After all, the S&P's are down a "whopping" 3.8% from its all time high doesn't that deserve nay demand a 50-point rate cut?

Tomorrow's decision could be the jet fuel that launches the markets to new all time highs; however, it could also be the loose tile on the fuselage that brings it back to terra firma. Trade close to the vest tomorrow afternoon.

Real Time Trading Signals*for

Trade Date: 12/10/07

E-Mini S&P Trades*
(before fees and commissions):

8:53 VA Sell 10.75 = -1.50 all

9:21 TP Sell 16.75 = -1.25 all

9:43 ID VA Sell 18.75 = +.75, b/e

10:33 OTF Buy 16.75 = +.75, -.25, -.25

11:17 FT Sell 16.50 = -1.25 all

1:03 FT Sell 15.50= +.75, b/e,b/e

1:47 OTF Sell 16.25 = -1.50 all

1:58 FT Buy 13.00 = +.75, +2.75, +3.75

E-Mini Russell Trades*
(before fees and commissions):

1) Buy @ 8:37am at 786.1 = -1.2 & -1.2

2) Buy @ 10:20am at 792.9 = -1.0 & -1.0

3) Sell @ 11:11am at 791.6 = -1.2 & -1.2

4) Sell @ 1:43pm at 790.2 = b/e & b/e

5) Sell @ 1:58pm at 788.8 = -1.1 (1 lot)

6) Buy @ 2:18pm at 789.5 = +1.1 (1 lot)

7) Buy @ 2:42pm at 790.0 = +.5 & +3.6

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