Morning Note: Hail Marys

Stock market fans were given quite the treat yesterday! Just when it appeared that their favorite team (SP500) appeared to have no chance of coming back from a monster deficit, lo and behold, a Hail Mary!

A question posed after the close in our internal research chat line:

"How many days has SPX been down 4%, then finished green?"

From my reply: "...they (bouts of extreme both-ways volatility) tend to occur around market tops (and some bottoms).. There are often these rip your face off rallies during the topping process... Here's (circled) -5(+) to +5(+) while the market was staging a 46% decline mid-Sept to end-Oct 2008... But again, crazy volatility at bottoms as well:"

We're making zero predictions here folks about the short-term direction of this market. Just recognizing, as we've been preaching ad nauseam, that the current setup rests on some pretty thin ice. Not saying it'll break, just saying it's thin.

Our opening to yesterday's note captures this morning's mood as well (although commodities are having a better go of it so far this morning):

"Geopolitical (Russia), political (WH pressure on the Fed to quell inflation) and inflation (the Fed) pressures have global equities selling off notably to start the week. 

Actually, the selloff extends beyond just equity markets, as commodities (save for gold, nat gas and wheat) are taking it on the chin this morning as well.

The tense geopolitical setup is presently very fluid so we'll not attempt to add any color there at this point. 

As for the Fed, their January policy meeting happens tomorrow and Wednesday, with world markets nervously awaiting Wednesday's announcement and press conference. Question being, will they maintain their now "hawkish" (well, certainly relative to what the market's grown accustomed to) stance and promise to whip inflation, as opposed to support asset prices? Political pressure of late has been on the former... We'll see..."

Asian equities got trounced overnight, with all but one of the markets we track closing notably lower.

Europe's bouncing a bit off of session lows, but still down a chunk from yesterday's close.

US major averages are down big across the board to start the session: Dow down 665 points (1.91%), SP500 down 2.37%, SP500 Equal Weight down 2.42%, Nasdaq 100 down 2.82%, Nasdaq Comp down 2.79%, Russell 2000 down 2.94%. 

The VIX sits at 34.10, up 14.05%.

Oil futures are up 0.76%, gold's up 0.51%, silver's up 0.07%, copper futures are up 0.39% and the ag complex is up 0.20%.

The 10-year treasury is down (yield up) and the dollar is up 0.27%.

Led by carbon credits, Indian equities, gold, base metals futures and Nokia -- but dragged by uranium miners, semiconductor stocks, MP (rare earth miner), solar stocks and tech stocks -- our core allocation is off 0.81% 

Again, we make no predictions on the near-term direction of stocks. Our job is to assess general conditions, take advantage of long-term opportunities where we see them while letting the short-term play out (accepting volatility), and hedging the big risks where we see them.

Bottom line:

"It is absolutely wrong to gamble in stocks the way the average man does."

--Jesse Livermore 

Have a great day!
Marty