The worst yet.

by Larry Levin

For those of you who refuse to follow a trend and constantly try to pick tops and bottoms, this market action must be very frustrating. Today's sell-off marks a new 10-month low and a new low for the year. All of the indices dropped 2.0% today. And finally, the small-cap stock index has fallen more than 20% from its high, which makes it an official market bear market in Lilliputian-land. The market often moves on the news of the day, and today was no exception. "The Philadelphia Fed Survey was a disaster, defying even the most pessimistic projections, "said Frederic Ruffy, an analyst at Optionetics. The Philly Fed diffusion index fell to a -20.9 in January, which is the lowest level since October 2001(!), from -1.6 in December. Readings below zero indicate most manufacturing firms surveyed in the region reporting worsening business conditions. Not only did the report show sharp drops in new orders and the average workweek, but it also reported very pessimistic views about the future activity in that region. "Rarely has the Philly survey been this weak without the economy in the throes of economic recession," wrote Tony Crescenzi, chief bond market strategist for Miller Tabak & Co. "The preponderance of data point to a contracting U.S. economy." Although this isn’t new news, it didn't help today: The Commerce Department reported construction on new homes fell 14% in December, to the slowest pace in more than 16 years! Merrill Lynch dropped a staggering 10% today in the wake of its latest admission of losses stemming from the CDO debacle. Merrill Lynch reported a record fourth-quarter loss of nearly $10 billion that wiped out about a quarter of the firm's book value in the last year. At the end of the fourth quarter, Merrill said its book value per share was $29.37, down from $41.35 at the end of 2006. Today's massive route of Merrill's share price marks a near 50% fall from its high a year ago. I have no idea when it will be a "good buy", but when the trend finally reverses I’m sure it will be a good trade. Of course, we may have to wait 3 or 4-years for this to happen, but it will be worth the wait. If the Philly Fed news mentioned above wasn't bad enough, the market took another body slam from the mortgage insurance sector. Moody's Investor Services and the credit-rating arm of S&P signaled fresh consideration of downgrades of big bond insurers' all-important AAA credit ratings. If such moves actually happen, it would represent a nightmare scenario for financial firms already finding it difficult to value and trade their "Frankenstein investments," excuse me – collateralized debt obligations of all stripes. Credit markets would become even more illiquid if these firms can no longer be certain that their counterparties can reliably deliver cash and securities -- the definition of good credit. Shares in bond insurer Ambac Financial Group was CRUSHED 51.89% today, while its competitor MBIA was down more than 31%. Both are in danger of downgrade. Hmmm, I wonder if this is bad enough for the FED to pull a fast one. Last August the market was getting crushed like it is now and on expiration day, which is tomorrow, before the market opened – the FED made a surprise rate cut. Hmmm, I wonder…

Real Time Trading Signals*for

Trade Date: 1/16/08

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



8:37 VA Buy 76.75 = +.75, b/e

10:04 OTF Sell 87.75 = +.75, -.25, -.25

10:42 ID VA Buy 59.00 = -1.75 all

10:53 ID VA Buy 57.00 = -1.50 all

1:03 ENG Buy 57.00 = -1.75 all

1:52 FT Sell 52.50 = +.75, +1.75, b/e

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

1) Buy @ 8:34am at 702.3 = +.5 & b/e

2) Buy @ 8:45am at 704.1 = +.5 & -.8

3) Buy @ 8:59am at 703.7 = -1.1 (1 lot)

4) Sell @ 9:05am at 700.4 = +1.0 & -1.1

5) Sell @ 9:09am at 702.1 = +1.0 & +6.3

6) Sell @ 9:41am at 692.4 = -1.0 (1 lot)

7) Buy @ 9:51am at 692.6 = +.5 & +.4

8) Buy @ 9:59am at 694.7 = +.5 & +1.7

9) Buy @ 10:11am at 696.2 = b/e & b/e

10) Buy @ 10:16am at 693.9 = +.5 & +1.0

11) Buy @ 10:32am at 694.6 = +.5 & -1.3

12) Sell @ 10:57am at 690.1 = +.6 (1 lot)

13) Sell @ 10:58am at 690.5 = +.5 & +3.0

14) Buy @ 11:34am at 689.0 = +.4 (1 lot)

15) Sell @ 12:05pm at 688.6 = b/e & -1.5

16) Buy @ 12:23pm at 691.3 = +.5 & +3.0

17) Buy @ 12:46pm at 693.6 = -.8 (1 lot)

18) Sell @ 1:46pm at 685.3 = -1.0 & -1.0

19) Buy @ 1:57pm at 687.1 = +.5 & b/e

20) Buy @ 2:08pm at 688.7 = -1.0, -1.0, -1.0 (ouch)

21) Buy @ 2:10pm at 688.2 = b/e & b/e

22) Sell @ 2:34pm at 683.6 = -1.0 (1 lot)

23) Sell @ 2:55pm at 682.8 = -.1 (1 lot)


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