Brief Tuesday Curtain Raiser

The Tuesday preview is late tonight because I took a break from all the charts and data. I vegged out with the kids and watched something totally mindless - the Sponge Bob movie with the kids. It was amusing, but the tv show is actually funnier. That's an expensive Hollywood production for you.

Things are looking far better than last night at this time with stock futures coming up green instead of crimson as markets in Asia stage modest rebounds including a 131 point gain for the Nikkei 225 into their midday break. Perhaps we're going to see a turnaround Tuesday? Heaven help the bulls if we wake up to red tomorrow morning, though. The gains in many of the Asian markets are the first in five days with some of the relief coming from a Yen that is just a tad bit weaker tonight, down by about 45 points basis Yen futures that I watch.

If we get a spurt out of the gate tomorrow morning, that will be something of a novelty for the bulls since last weeks 400 point slide. Instead of weakness to buy on, what will they do with strength at the open if they get it? Thus far buy on dip has resulted in good long scalps into midday, but then fade set in as seen in today session..

There's something that's been bothering me and I've got to get it off my chest. More than a few commentators, and I'm not just talking blogs, but analysts, talking heads, etc have made remarks to the effect that investors should remain calm because nothing is really different in the financial landscape today versus last month when the Dow was flirting with record highs. Whoa, Nelly - take those rose colored glasses off!

Here are a few things that have changed in just the last few weeks (in no particular order of importance):

1. GDP went from being first estimated at 3.5% in 2006 Q4 to just 2.2%;
2. 32 subprime lenders have gone kaput as of today since late 2006, several in the last 2 weeks, according to mortgageimplode.com;
3. The Yen carry trade has started to unwind;
4. The myth a subprime credit crunch will be contained is fading fast
5. China raised bank reserve lending ratios last week to try to cool speculation
6. Signs of contagion spreading to CDS on major brokers, CDX, Itraxx, CMBX, swap spreads, according to Roubini blog.
7. Manufacturing gauges confirm contraction in that part of the economy
8. Merrill's Rosenberg says Recession chances by year-end are now above 50%

In a quick sentence: This isn't last month, or last May for that matter. Staying calm is good advice, but be extra cautious.

Perhaps the key similarity to now and a month ago is the generation of liquidity. The reconstituted M3 remains totally out of control. Other world central bank monetary measures show similar money supply gains which should be supportive to stocks, and that keeps me open minded enough to not blindly hold something like March 70 LEH puts if the market does start to turn. I am just going to take it a day at a time. I just get bent out of shape by folks trying to portray this merely as a 'correction' without bringing some honest analysis to the table. There's more than meets the eye, especially when you see the breathtaking slump in brokers index (XBD) from its 50 day moving average and then down through is 200 day in six sessions!

Earlier today, market technician John Murphy at stockcharts.com sent an email which did me some good. He is also of the opinion that VIX is headed to test the highs of last year - that would bring up toward the 23 neck of the woods before long. That's as far as I will take it; once we take out the highs of last year, then I will want to see if volatility has returned by way of how supportive the 200 week moving average will be. That average held up remarkably well from 1996 to 1999.

On the economic calendar, 8:30 Tuesday, productivity and costs data comes our way. It's expected to be adjusted lower from previous estimates to gel with the lowered GDP in the 4th quarter. 1.6% is the consensus number. Unit Labor costs expected to come in at 3%. Factory Orders and Pending Homes sales data are due at 10 eastern.

2 p.m. Tuesday Bernanke speaks about Government's Sponsored Enterprises (GSE's) via Satellite to the Independent Community Bankers Association meeting in Honolulu. Reminds me of Elvis via satellite