Friday, October 24, 2008

October 24, 2008: Morning Call

October 24, 2008: Morning Call

Fair Value: SP500 – 908.15; NDX: 1243.81; DOW – 8681.31

Technical Levels:

SPX: 848-850, 899 support/ 1098-1100, 1142, 1250 resistance

NASDAQ: 1640 support /1890 resistance


Pre-market EPS:ERIC (.13/7.21B); TROW (.56/551.0M)

10:00: Existing Home Sales (Sep): 4.97M; 1.2% MoM

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading limit-down 60 points. NASDAQ futures are trading limit-down 85 points and the Dow is limit-down 550 points as the global collapse in confidence deepens. The massive risk aversion is causing panic selling in many emerging markets while the USD and Yen are seeing stunning gains against most other currencies (the USD trading at 92.1 yen, down a remarkable 5.2%- yen rallying on risk aversion as market participants have borrowed yen cheaply to invest in other assets outside Japan; there is a total collapse in the yen carry trade this morning). The British pound is down more than 5% against the USD, the biggest drop in at least 37 years and down a stunning 11.5% on the week, more than the 9.8% drop when George Soros broke the peg that linked the pound to the deutschmark. The Indian rupee fell through 50 against the dollar to a record low. Asian markets closed down 8%-12%. South Korean trading was halted for 30 minutes after the Kosdaq fell (10%). South Korea fell on news Q3 economic grew was only 0.6% q/q, and disappointing earnings from Samsung Electronics (005930.KS) and Lotte Shopping (023530.KS). Japan dropped in the wake of Sony (6758.JP)’s cutting its full-year profit forecast yesterday dragging other tech firms lower. Hong Kong was led down by HSBC (5.HK) and Standard Chartered (2888.HK) after Morgan Stanley slashed target prices and lowered 2008 earnings estimates. European marketsmoved sharply lower following weaker Asian markets and continued earning concerns highlighted by poor Q3 results and outlooks from some European industrial heavyweights. The major indices declined between (5%) - (7%), attempted to rally before disappointing economic data and weakening US futures extended the declines. The major indices are currently down between (7%) - (8.5%). The Danish Central Bank raised its key interest rate 50bps to 5.5%. There are no advancers on the FTSE 100. UK Q3 advance GDP (0.5%) q/q vs consensus (0.2%), the first q/q contraction since Q2 1992. All Eurozone, Germany and France Oct PMI releases were weaker than expected except for Germany Oct Advanced Services PMI 49.7 vs consensus 48.8.

Cash remains king and traders should still focus exclusively on a disciplined short-term tactical trading strategy. Taking substantial overnight risk is a recipe for going out of business.

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