Fireworks In Banking Sector Crashing Futures Markets
Its Midnight EST right now. The S&P futures are currently down about 46 points with the Nasdaq down about 50 plus. There have been fireworks set off today in the banking sector. Bank of America has acquired Merrill Lynch for about 44 Billion or, $29 per share. I am still struggling to understand the logic in this move by Bank of America. They paid a huge premium on Merrill compared to Friday's close. As we discussed last week, a move lower was inevitable in Merrill and without this bailout by BOA, it would have happened fast, why not pick it up at lower prices?
Lehman Brothers could not find help this weekend. BAC and Barclay's were reportedly in the hunt, however, that fell through. Lehman will now be forced to unwind their assets in a firesale it appears; the fed has refused to provide any capital infusion to help Lehman survive. This is the first major failure that the Fed has refused to bailout. This is what is truly spooking the futures traders.
If this was not enough, AIG is now in talks with the Fed to acquire a 40 billion dollar infusion to keep their credit rating. If they do not receive this aid, AIG will be the next big institution to fail. A credit ratings downgrade will devastate their portfolio.
To ease the credit pressures in the market, a consortium of 10 banks has agreed to avail 70 billion in capital to help cash strapped banks. JPMoganChase, Goldman Sachs, Bank of America Corp., Barclays PLC, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Merrill Lynch & Co., Morgan Stanley and UBS were the ten banks contributing 7 billion each.
Gold is rallying 3% on the news right now as the printing press (fed) continues to create wealth (or dillute it).
What does this mean for us Traders?
To be honest, I have no idea what tomorrow will hold for us. I will steer clear from my day trading activities tomorrow. This volatility extreme is not conducive to my type of intraday trading. Logic will be thrown out if we do crash in the morning. Intermediate term traders; you all know that I have been looking for 1165 to 1182 for two months now. If the market opens up down 40 or 50 S&P points, we may even get those targets tomorrow. We are seeing the external flush that we mentioned here. I believe a SUBSTANTIAL bottom in the stock markets is not far off. I need to see how tomorrow's action holds near the close for me to make more definitive conclusions. I am looking to initiate half of my long term position around those levels. If the market slices through these levels, I do not believe it will be long lived and I will most likely add the second half into that panic.
This is the panic we are looking for to mark an important bottom. Every major bottom was made in the face of gigantic fear and this one appears to be no different.
Stay tuned, I'll be back with more tomorrow after the market closes, or during if I decide to go long 50% into retirement accounts.
Check in with the blog throughout the day as the RSS update will not go out till tomorrow night.
