2/4 Morningline

SPY, the exchange-traded fund that tracks the blue-chip stocks, ended its two-day head-fake with a gap down from yesterday's trading range, and then a decline into the trading day.

The trading pattern for nine days has basically been a sideways track contained by the 61.8% and the 38.2% Fibonacci retracement levels.

Treasury long bonds (TLT) are on the rise, meaning interest rates are on the decline. TLT is in the second day in macd bear territory. High-interest corporate bonds (JNK) are trading down at levels not seen since December, suggesting traders see an increased risk of corporate defaults.

Gold (GLD) glistens not. It gapped down by 1.8% with a bearish macd. Oil (USO) also gapped down with the macd showing bull signals.

Down the emerging markets. Down U.S. dollar against the Japanese yen (USD/JPY). Up the dollar against the euro (EUR/USD).

The end of the world as we know it?

This is the 11th straight day the macd on SPY has been in bear mode. Person's Proprietary Signal on Monday gave a bull signal, and gave a countervailing bear signal 18 minutes after the opening bell. Too late! Far too late! (Read the results of my pps backtesting here.) What to make of all of this? The number of people filing new claims for unemployment increased by 1.7%. Economist had forecast a decline of 3.6%. The number suggests that Friday's monthly unemployment report will be higher than expected. The number of claims -- this is a weekly report -- are at about where they stood on Jan. 16. This is no great insight. It's likely to be the lede on every market story today.

So, in the rather simple-minded reasoning of the markets, SPY is down because jobless consumers buy less. TLT is up (interest rates down) because the Federal Reserve is less likely to raise rates while the recession holds sway. JNK is down because more companies will default because business is not so good because the jobless consumers aren't buying.

What I don't get is why the the magnitude of the reaction? Unemployment is a lagging indicator -- it shows where you've been. The markets, rationally, should focus on where the economy is going.

I think someone on Wall Street had a birthday party today, and the interns' were left in charge. Just a guess.

Among holdings, MCO gapped down after earnings were announced. I've owned the stock since last year. It was a zombie position after a covered call expired without being exercised. During the January price rise I sold a new covered call for February, with a strike price of $30, and it looks as though it, too, will expire unexercised. The MCO zombie will continue to stalk my portfolio.

CVS, an iron condor, has fallen to by 1.8%, high to low, to near the lower limit of profitability. It is showing a 31 cent profit now. If I wait until expiration (and the stock doesn't decline below the lower limit, then I'll have a 90 cent profit.

Earnings will be announced on Monday, Feb. 8, before the markets open. So I must act by end of business Friday.

Safety or riches? The eternal question. Do I stay or do I go?

(When a covered call expires unexercised, you get to keep the premium on the call you sold, and you keep the stock as well. Not necessarily a bad thing.)

Let's run the numbers:

Indicators, at about 10:15 a.m. Eastern:

• Blue chip stocks (SPY) is trading at $107.81, entered macd bear mode at close on Jan. 20 (at $113.89)
• Fear index or volatility (VIX) 24.92, bull (bearish for stocks), Jan.20 (18.68)
• Treasury long bonds (TLT) $91.04, bear, Feb. 3 ($90.35)
• Corporate junk bonds (JNK) $38.28, bear, Jan. 19 ($39.87) 
• Emerging markets (EEM) $38.21, bear, Jan. 15 ($41.95)
• Gold (GLD) $105.00, bear, Jan. 12 ($107.37)
• Oil (USO) $36.66, bull, Feb. 3, ($37.65)

 Forex currency pairs:

• Dollars per euro (EUR/USD) $1.3789, bear, Jan. 20 ($1.4106)
• Yen per dollar (USD/JPY) ¥90.43, bull, Feb. 2 (90.37)

Stock options holdings, February expiry:

• CVS, iron condor (p29/-p31/-c34/c36) $31.89, bear, Jan. 21 ($33.24) (Earnings is Feb. 8. Should I hold and risk a surprise?)
  
• ERTS, iron condor (p15/-p16/-c18/c19)  $16.86, bull, Feb. 3 ($17.27) (Earnings also Feb. 8.)
• MCO, covered call (-c30) $26.87, bull, Jan. 28 (28.32)
• PALM, covered call (s/-c13)  $10.56, bear, Jan. 26 ($11.17)

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Topics:
S&P 500, SPDR, Spiders, Treasury bonds, high-yield corporate junk bonds, emerging markets, gold, precious metals, oil, petroleum, CVS, pharmacies, drugs, Electronic Arts games, Moodys bond rating, Palm smartphone Pixi Pri.