Slam!

by Larry Levin

Today's market was body slammed, driving the Dow 370-points and the S&P 35.50-points into the canvass. It was the Dow’s biggest percentage drop (-2.93) in almost a year.

Volatility is here to stay and traders (like me) LOVE that. Today's volatility spike was due to the latest terrible economic data that somehow continues to surprise Wall Street. The ISM Services report was the 2nd worst in its reporting history! If you wondered why it affected the market long before the open, it was said the data may have been "leaked" - so the government released the pain a bit early.

"[The ISM data] raised additional concerns that the slow-down which was being partially supported by the service sector is quickly sliding into a full blown recession," said Robert Pavlik, chief investment officer at Oaktree Asset Management. "Adding to the selling pressure are money managers who are scared that they might have gotten into some of the financials and retailers over the past two weeks a bit too early and they're moving back to cash."

The non-ISM data reflects manufacturing activity, so when that data is lame and getting gangrene, nobody seems to mind. "Hey Frank, this part of the economy is starting to smell like bad cheese. What should I do?" Since manufacturing doesn't seem to matter any more, the reply comes - "put a little topical cream on it."

The ISM Services data, however, reflects the service sector which accounts for about two-thirds of the economy. And when this pulls up lame, the team doctor sprints on the field. Just days after a 1.25% beheading of interest rates, and your savings rates, Merrill Lynch got the triage unit on the field this afternoon, calling for another intra-meeting rate cut. Here's a thought: have the recent cuts even had time to affect the economy yet? No.

"The report drives a nail into the coffin from investors' minds that we're in a recession," said Todd Salamone, director of trading at Schaeffer's Investment Research. "That doesn't mean stock prices in the months ahead will be lower. But when you see headline numbers like this, there tends to be a reactionary sell." Perhaps it is reactionary to sell; perhaps it is the right thing to do. I wonder if Mr. Salamone would have called selling out of one's portfolio in 2001, after just a 15% correction, "reactionary?"

In other news, Fitch plans to lower the rating on more than $100 billion wrapped up in bond funds, more collateralized debt obligations, which added to the concerns mentioned above. Downgrades would mean the securities, many of which are backed by mortgages, are worth even less than many investors thought. That could cause more problems for struggling banks, brokerages, and bond insurers.

Unless something dramatic happens, the momentum is still down. So again I say...trade well and follow the trend, not the so-called "analysts/experts."

Real Time Trading Signals*for

Trade Date: 2/5/07

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

8:35 B/A Sell 59.50 = +.75, +2.00, +1.00

9:32 ID VA Sell 62.50 = +.75, +3.50, +2.75

9:58 ID VA BUy 55.25 = -1.50 all

10:13 FT Sell 53.25 = +.75, +.50, -.25

11:12 ID VA Buy 54.00 = +.75, +.75, b/e

1:23 ENG Sell 47.00 = +.75, -1.25, -1.25

1:32 OTF Sell 49.00 = +.75, b/e,b/e

1:42 ID VA Buy 49.75 = +.75, -1.75, -1.75

2:17 FT Sell 44.50 = +.75, b/e

2:25 ENG Sell 43.50 = +.75, +3.00, +.50

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



1) Buy @ 8:43am at 714.2 = -1.1 (1 lot)

2) Sell @ 11:52am at 714.2 = +1.3 (1 lot)

3) Sell @ 12:21pm at 711.3 = +.8 & b/e

4) Sell @ 12:41pm at 709.4 = +.5, +1.0, +1.2

5) Sell @ 1:25pm at 710.1 = +.5 & b/e

6) Buy @ 1:40pm at 710.2 = -.9 (1 lot)

7) Sell @ 2:15pm at 705.5 = +.5 & -1.2

8) Sell @ 2:32pm at 705.2 = -1.1 & -1.1

9) Sell @ 2:45pm at 705.8 = +1.0 & +1.4...+$280.00


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