Who is next on the list for a goverment bailout?  With LEH down 30% this morning, it is looking more and more likely that this will be the next event.  A shotgun wedding for LEH and BAC?  Do I hear 2 dollars a share again?  Maybe some type of reward for following through with that terrible Countrywide deal?  The giddiness of the FRE and FNM bailouts is starting to wear off and reality is sinking back in. 

BA

As we await news of another government bailout of a public company this weekend, the over-riding theme of this year is: trust the government.  The news of what form this latest bailout will take will be announced before the open of Asian markets on Sunday.  If the equity holders of FRE and FNM aren’t completley wiped out, then there should be a criminal investigation.  The equity holders of Bear Stearns should have been wiped-out.  The liberal use of taxpayer money to support risk taking enterprises is criminal.  This year is turning out to be one of the most historic in the history of this country.

Trust the government to report numbers correctly.  The official job loss yesterday was a loss of 84k.  This number includes the fairy tale birth/death adjustment of +125k.  Does anyone really believe that construction and finance actually added jobs last month?

As for the market,  I have said this all of this year.  This decade has been led by an unprecedented credit expansion.  The market has rocketed higher on cheaper and cheaper credit.  Now, we are facing the opposite of this, a credit depression.  Easy credit is gone.  The market will continue to grind lower into year-end.  This will take years to correct itself, not months.

BA

Friday’s stock markets tested the July lows, providing us with a daily hammer that could be an early indicator that the worst could be over. We will need confirmation from an up day on Monday, but considering the oversold nature of the market we are in position to at least bounce from this position. The problem is that the weekly charts do not look good, so it could easily just be a bear market rally. We will continue to watch the markets closely this week to see if the markets can make some kind of decision, or if we are still playing a waiting game.

JD

The stock market continues to consolidate at relatively low levels. Bears keep knocking the market down with each piece of bad news on the economy while Bulls continue to prop up the financial markets every time the price of oil and other commodities falls.

Both the DJIA and the SP 500 are hugging their 50 day MA while their trading ranges have tightened over the last month. The DJIA is now trading between 11, 200 and 11, 800, with the SP 500 bouncing between 1250 and 1300.  Just when you thought the Technology stocks in the Nasdaq were going to pull the stock market out of the summer doldrums, these stocks apparently decided to join the consolidation club to linger once again between its 50 day MA and 200 day MA.

While another Iron Condor could work going into September options expiration, the drop in volatility in the last month means that the premium you would receive for putting on one of those trades probably does not make them worth the risk.

The people doing best in this market are active traders. Market moves are not lasting more than 2 or 3 days, so trading puts and calls would be a better idea than spreads right now.  That being said, since stocks could break out of this trading range at any time, you need stops in place to protect yourself from sudden market moves that go against you.

If you do not have the time to be an active trader, you may be better off sitting on the sidelines until this market gives us a better indication on which direction it wants to go next.

JD