"Recession on, recession off, repeat."

by Larry Levin


Today's early tape resulted in some vicious reversals until the S&P finally chose a direction in the afternoon - lower. In fact, the early trade reminds me of what's happening on a longer term basis, which seems to be the constant discussion of a recession in 2008. Who will win the grudge match? Will Goldilocks-the-pugilist have her hand raised after a 15-round bout with the contender (recession), or will the nasty bearer of lower equity prices prevail? Don't bother with economists; ask ten of them and you will surely get a mixed response.

Talk on the floor today was often about the latest Fed action. Floor traders and investors alike were nervous about the Fed's latest offering; a $20 billion 28-day credit auction. The aim of the auction is to encourage commercial banks to borrow from the Fed. The purpose, of course, is to boost banks' lending to businesses and consumers and keep the economy running along.

In most Treasury auctions we want to see a good bid-to-cover ratio, which when strong, means there is still good demand for U.S. "IOU's." The opposite could create a fear of less buying (demand) that could lead to falling prices, which in turn drives up interest rates. We will find out the results on Wednesday, which could lead to some interesting discussion as well as market action. This time, do we really want to see a good bid-to-cover ratio? If the ratio is high, would that mean the banking sector is in dire straights?

Perhaps reigniting the recession fears for this morning's tug of war was the Maestro, the Bubble Blower, 'ole EZ-credit-Al himself, Sir Alan of Greenspan. EZ-Al was on television yesterday opining that the odds of recession were now 50-50 and warned of the possibility of stagflation. Whoa, stagflation? To be sure it's a possibility, but do not expect to hear that from any economist that collects a paycheck (not self-employed) or anyone in the government. Stagflation is increasing prices (inflation) without the commensurate rise in incomes (stagnant economy), which is probably the worst thing that could happen to an economy. To bad EZ-Al is isn't in power to puff up another "bubble" but where would he blow?

In other news, the New York Fed's Empire State Manufacturing Index fell more sharply in December than economists anticipated, while the National Association of Home Builders said its housing market index held steady in November at its lowest level since it started the index in 1985, YIKES!

Real Time Trading Signals*for

Trade Date: 12/17/07

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


9:19 ID VA BUy 1.75 = -1.50 all

9:42 ID VA Buy 91.75 = +.75, +3.75, +3.50

10:20 ID VA Buy 94.00 = +.75, b/e

1:10 ID VA Sell 87.75 = -1.75 all

1:38 OTF Sell 88.75 = +.75, +3.75, +2.50

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

1) Sell @ 8:41am at 753.3 = +.5 & +2.4

2) Sell @ 9:02am at 752.0 = -1.1 (1 lot)

3) Sell @ 9:10am at 752.0 = +.5 & (b/e)

4) Buy @ 9:28am at 752.6 = -1.1 & -1.1

5) Sell @ 9:36am at 752.2 = -1.1 & -1.1

6) Buy @ 9:41am at 752.8 = +1.7 (1 lot)

7) Buy @ 10:03am at 752.8 = +.5 & -1.1

8) Buy @ 10:28am at 751.5 = +1.5 (1 lot)

9) Sell @ 10:54am at 751.9 = +.5 & -.5

10) Sell @ 11:04am at 752.6 = -.5 (1 lot)

11) Buy @ 11:44am at 753.1 = -1.2 & -1.2

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