The FOMC Derby

by Larry Levin

Shortly after Friday's open I swore I had seen this horse race before, and it went something like this. "Here they come, spinning out of the turn. Increasing-Unemployment is in the lead, followed by Subprime-Alchemy, Socialized-Losses, and Bernanke's-Put. These horses are really flying through the second turn and the positions haven't changed. Coming up on the inside, making a big move is Socialized-Losses, which brings a huge roar from the crowd. Oh, they love Socialized-Losses here at The FOMC Derby. Coming into the home stretch Increasing-Unemployment is fading fast along with Subprime-Alchemy. Socialized-Losses and Bernanke's-Put are driving to the finish but a dark horse from the back of the pack is making an amazing move...he's flying up to the front of the pack! Oh my goodness he's in the lead...and it's over - what a finish! In fourth place is Increasing-Unemployment, the show horse is Socialized-Losses, the place horse is Bernanke's-Put, and the winner from the back of the pack is...I-Don't-Give-A-Damn."

The horse race above is exactly what happened during the week, not just on Friday. Once again, there were a host of bearish headlines last week. Once again, too, there was a glut of headlines specifically pertaining to the financial sector. Overall the stock market's take on things was nothing short of enthusiastic. The S&P 500 rallied just over 4.0% for the week.

Last week's rally was a remarkable move on a number of levels, not the least of which was the fact that it came on the heels of the worst quarterly performance since 2002. Of course, there was also the terribly poor monthly jobs data, revisions to prior monthly data, and poor weekly employment data. The weekly data, the worst in four years, proves the jobs picture is getting worse.

But Friday's monthly data was also a surprise. Not only was it worse than expected and the third monthly job loss report in a row, but the prior two months' data were revised sharply lower. Friday's data was the steepest monthly job loss in five years as well as reporting a spike in the unemployment rate. Of course there were several other bearish headlines that one could point to, but I don't want to rehash that now.

In spite of all this bad news, the market ended up nicely for the week making "I-Don’t-Give-A-Damn" the winner by a length. Perhaps the low is in? Perhaps the write-downs have ended? Maybe Ambak is really an AAA-rated firm? Only time will tell. Next week, however, we may have a better handle on it when many firms release earnings numbers. If they are good, the market will surely rally. If they are bad and the market continues to rally that will be a good sign the low is in. Either way, I'll just follow the trend.

"Earnings have kind of been in the background for the past six months as we dealt with the financial crisis, but we're starting to see earnings matter now," said Brad Sorensen, director of sector research at Charles Schwab. "People are starting to pay attention more to get guidance about what rest of the year will look like."

Real Time Trading Signals*for

Trade Date: 4/4/08

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


1) VA buy @ 9:15am at 1365.00 = +2.00 (1 lot)

2) Engf sell @ 9:30am at 1367.50 = -1.50 (1 lot)

3) PP sell @ 10:05am at 1371.00 = b/e (1 lot)

4) Engf buy @ 10:20am at 1373.00 = +1.50 (1 lot)

5) OTF buy @ 12:50pm at 1379.00 = +1.25 (1 lot)

6) 80% sell @ 2:30pm at 1374.00 = +3.00 (1 lot)...+6.25

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


1) Sell @ 8:47am at 711.7 = +1.0 & -.1

2) Sell @ 1:49pm at 717.5 = b/e (1 lot)...+90.00


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