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Negative carryover from “New Deal Version 2.0” and fresh global credit concerns keep the bulls charging lower to kick off the week. As of 10:57 ET the “Cubes” (QQQQ) and “SPYder” (SPY) are each off “ruffly” 5.75% on more of the same volatile and above-average efforts at daytrading.

From across-the-pond, European bourses saw percentage decliners upwards of 5% in Monday’s session. Carryover / sympathy weakness from Friday and fresh credit-related concerns have underscored fresh contagion style fears. Spearheading for many, a German government-led consortium announced a bailout of Hypo Real Estate, the country’s second largest commercial property lender for an estimated $68B for.

The news, after a failed private attempt at recapitalizing the company, as well as emergency injection efforts at several other financial institutions overseas, has been atop stateside reasons for doing more than just schnitzeling a little.

Of the few remaining U.S. Anchor Bankers (XLF) left standing (it seems), a couple have added to an already toxic mix of negative sentiment. BofA (BAC) is shedding 7% intraday at 32 after the company agreed to settle suits over its mortgage practices and modify nearly 400K in troubled mortgages related to its acquisition of Countrywide Financial.

A clash of bloodied titans is being seen in shares of Citigroup (C) and Wells Fargo (WFC). The former is taking the brunt of the punishment after the banking giant filed an injunction against Well’s surprise $15.0B / $7 per share bid for Wachovia’s (WB) banking operations. Earlier in the week, Citigroup had made a “Mortimer” type $1 bid, along with the help of the FDIC, for those same assets. Intraday, bulls are ‘trading places’ with bears as shares of C slump by 10.50% to 16.50, while WFC finds itself robbed of 2.75% at 33.65.

Emphasizing the decoupling of market confidence / risk aversion, the Federal Reserve announced an increase by as much as $900B, in the amount it’s willing to loan to member banks. The move is its latest attempt to stave off further liquidity problems in the credit markets. Additionally, regulators and the Chicago Mercantile Exchange are in talks regarding the creation of a marketplace for the currently imploding and gargantuan $55 trillion credit default swaps i.e. CDS market.

On the bright but obviously non-influential side of what’s driving investors, shares of insurer Hartford Financial (HIG) are tacking on 12.50%  near 30.85. A report has the ailing company receiving a $2.5B stake from European giant Allianz (AZ) following last week’s capital-related price plunge.

Separately, Imclone (IMCL) agreed to a $6.5B / $70 per share cash deal with Eli Lilly (LLY), which bests Bristol Myers (BMY) existing $60 bid which had been refused by management. For its part, investors are still waiting for the brass ring to some degree, as shares of IMCL trade up 1.85 at 66.80.

Elsewhere, one-time growth standout Ceradyne (CRDN) announced a $2.37B / 5-year contract for its ceramic body armor equipment known as XSAPI and ESAPI from the US Army. After registering a surplus of “buy the news” investors’ out-the-gate, shares have tanked along with the broader averages, currently off 1.62 at 31.34.

In other intertwined markets, investors still able to motor around town should continue to find lower prices and probably less traffic at this point, if the doom and gloom crowd are correct. Black Gold (USO) is off for a fifth straight session on losses of 4.15%. Sentiment remains the key driver, as credit market fears finds investor concern careening towards softening demand as global economies go skid towards recession. Technically, the latest price action is registering fresh seven month lows and an undercut of the September lows—which for bulls, is called a lower low double bottom, when it works.

And finally, CNBC continues to beat the pants off TNT in the drama department. With the VIX scoring fresh all-time (adjusted) highs in excess of 55% and a non-trumpeted “Dow 10K!” now a piece of history and north of the current pin action by 1.50%; most investors trying to dabble in value bets are likely wishing the current hit show would lose some of its audience base and go off the air…in a good sort of way.

The overall action, aside from the majors getting clubbed, remains tenuous at best. It’s the type of rare environment where $30 per share and down 70% from recent highs, quickly pressures value players of both the fundamental and technical camps into questioning their conviction when shares of the ABC Corp, which manufactures widgets, is trading at 27, 25, 24.10 and so on and so on. In saying that, in a still very mad money market, daytraders and option-based hedgehogs remain the only clear favorites until Yom Kippur, an emergency rate cut, a FTD or maybe just fear exhausting itself ‘udderly and completely’ give longer-term bulls something they might be able to begin appreciating.

Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual. 

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