Reversal Day

by Larry Levin


There was a reversal in the S&P500 today. The market gapped open higher and slowly...oh so leisurely...went higher. It was a very choppy lethargic trade noted by its lack of volume. Once again when the market rallies, it is able to do so on ridiculously low volume. NYSE volume was 33% lower than Friday's total.

Perhaps a little of the choppiness was due to the mixed economic data? The ISM manufacturing index was much better than expected with a reading of 58.4. Last month's excellent ISM reading was revised lower but not nearly as much as the recent durable goods "statistical error" revision.

But for the few goods reports there are an avalanche of bad data. Today's dour note came from construction spending, which was lower than economist guesses by nearly a factor of three. Consensus estimates were for a negative reading of -.5% but came in at -1.2%.

Bloomberg said this - The construction sector is still mired in contraction based on recent construction outlays. Overall construction spending for December dropped another 1.2 percent, following a revised decrease of 1.2 percent in November. The latest number was worse than the consensus forecast for a 0.5 percent decline. Weakness in December was led by decreases in private residential spending and by public outlays.

Reflecting a recent weakening in housing starts, private residential spending dropped 2.8 percent after a 1.4 percent fall the month before. The December decline was in the multifamily component which fell 4.4 percent as new single-family outlays rose 0.6 percent. Public outlays decreased 1.2 percent, following a 1.2 percent decline in November. Private nonresidential outlays made a partial rebound of 0.2 percent after a 0.9 percent drop in November.

How can the lame stream media continue to say housing has bottomed when there isn't a single shred of evidence it has? What's more, how will Congress react to the next banking "crisis" as residential housing and commercial real estate go into their next leg down?

I can hear some jack@$$ Senator now, screaming at bank CEOs in a well televised finger-wagging event: "Why didn't you repair your balance sheets when you had the chance? This is an OUTRAGE! I demand to know not only why you carried your real estate portfolios above their market values, but how you hid the truth from Congress. My constituents insist on an answer."

You will then see a congressional aid whisper in the old dinosaur's ear "Umm, Senator, you allowed it all to happen. In fact, it was your idea to replace 'mark to market' accounting with 'Enron accounting' when Goldman Sachs donated $1-million to your reelection campaign."

Put it in the book - it will happen.




Previous Day's Trading Room Results:

Trade Date: 2/1/10

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


1) No "Secrets" trades filled today.

2) Algorithm positions (13)

3) "Reading the Tape" positions (4) ...combined Secret's, Algo, & "Reading the Tape" total...+1.25



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