Meanwhile, back at the office, I continue to refuse to buy into the necessity of having twitter verification. I am confused enough as to whether I am a human or a machine. How could I possibly verify either scenario? Further, how am I to know there isn’t someone out there who could do a better job at being me? I relayed these thoughts to The Shrink earlier. He told me I need to come by and chat with him sooner rather than later. After that I talked by Amateur Radio with X and we recapped today’s action.

The S&P 500 Index closed lower by 27.23 points or 2.58%. Breadth was strongly skewed to the downside in what I will term an official day of distribution: sellers clearly overwhelmed buyers across the board. Credit spreads widened, the cost of risk insurance escalated. Overall it was a positive day if you are positioned as I am: Dollar, treasury, default swap and volatility strength coupled with equity/commodity weakness.

Yesterday, the only strength in the broader indices was the oil sector. Had crude not rallied–and not held it’s ground today–the broader indices would have seen further weakness. I spoke to newspaper Joey–my contact who trades big size in NYMEX energy futures. His take: the strength in crude won’t last. Smart money is short oil cars here in reasonable size.

With the sell off as strong as it was, it is important to see how the market reacts from here. Since March, every sell-off with any hint at distribution has been bought. Look at the lows of July 8th, August 17th and September 2nd. Buyers came in every time. If this time is different we will know very soon–perhaps in the next couple of trading days. In my September 12th Rap, I showed a chart of interest rates. The level I highlighted was broken today.

If you are a long only fund manager it is very easy to hedge your portfolio by being long treasuries. If you are heavily invested in private equity or if the majority of your assets are not liquid–such as shares of non public technology companies, you can hedge your downside by buying Treasuries. If you are a trader, there are plenty of ways to profit from the risk aversion scenario I have outlined.

If you’d like to contact me directly, drop me a line or a call at my office - The Tinker Factory.

I’ll be back soon, as the beat goes on.

$TNX Ten Year Rates

The S&P cash index closed lower by 6.40 points or .61% at 1044.38. The S&P mini futures contract closed at 1041.00 — 4.75 points off it’s low print of 1036.25, which was printed just after 10AM PST.

ES - 15 Minute

Overnight, credit spreads in Asia were wider by 9% on bearish news out of Aiful as well as a 30% dilutive secondary offering out of Nomura Holdings (8604.TSE). In the states, credit spreads were wider across the board. Default swaps were active with about 7 wideners to every tightener.

Gold came into the week at $1,006.15/oz. and closed slightly lower at $991.35/oz. Crude oil closed a tad higher today, but lower on the week to settle at $65.05. Crude has broken lower out of consolidation in what could be a harbinger of further weakness in the near term.

Crude Oil - Weekly

Research In Motion closed lower by 17% at $68.91, just above it’s low print of $68.47.
The $VIX closed at 25.61, up 2.65% on the day.

I’d sum up this week’s trade in equities as mildly distributive. I saw evidence of defensive posturing (risk aversion) amongst traders. In order for the sell-off to gain momentum, we will need a catalyst. What that catalyst could be is yet to be known. The situation will continue to be monitored and the beat will go on.

The S&P cars roared out of the gate and climbed a few points on euphoria from the better than expected employment claims headline: 530,000 versus 550,000 expected. 30 minutes after the open, existing home sales hit the wire and were light of expectations: 5.1 million Vs. 5.35 million expected or -2.7% month over month. After selling off, the market traded in a range for the remainder of the session, closing lower by 10.09 or just under 1%.

S&P 500 - September 24, 2009

Oil and gold mirrored weakness in equities as the dollar was well bid. Inversely, the Euro was weak.

US Dollar - 15 Minute

Volatility is beginning to pick up and closed higher by 6.22% at 24.95.

VIX - Daily

Credit spreads were wider across the board. US bonds were well bid. The 7 year $29 billion auction drew 3.005%, bid to cover ratio: 2.79 Vs. 2.63 prior. Indirect bidders took 61.2%. Even Rick Santelli — who grades on the curve — gave the auction an A.

After hours, Research In Motion (RIMM) traded lower on lighter than expected top line revenues and weak year over year margins: 44.1% Vs. 50.7% a year ago.

I have been cautious and positioned for risk aversion — strong dollar, weak equities and commodities. The market is pulling back and distribution is increasing. I will continue to watch how players react to the distribution. Whether this pullback will develop into something more meaningful is yet to be seen. For the short term, the path of least resistance is lower.

And the beat goes on.

The cash S&P 500 index closed lower by 1% or -10.79 points. The highlighted line in the chart below is the 15 minutes between 2:15 and 2:30 EST; The time of the fed announcement.

S&P Futures - 15 Minute

Initially the market traded higher, but the move was faded by the smart money. By 2:45 EST the market was on it’s way lower and sold off until the final 15 minutes.

Rates were expected to remain on hold at 25 bps and as widely expected the fed did not move the funds rate. There has been talk of the fed starting to reign in some of their easy money stance, and it was confirmed that the spigot will be tightened a bit. MBS purchases by the NY Fed will be smaller and not as frequent.

From what I could tell, the S&P traded lower on strength in the dollar. I continue to think a move higher in the USD will catch the majority off guard. If this happens, I am positioned to benefit.

As the dollar gained strength, and the S&P traded lower and the $VIX strengthened. In credit spreads, high yield and investment grade both closed at their respective wides of the day.

Volatility Index - VIX - 15 Minute

The intensity of the selling picked up today on the NYSE. Down volume was just about 76% of the total up/down volume.

I’ll be back at 9:30 AM EST or 6:30 AM PST.

Wherever I am, I will be there. And the beat will go on.

Meanwhile, back at the office, I just hung up with Tony Stark. Due to client confidentiality, I am unable to disclose whether I run money for Tony. I can say that due to the magnitude of cash flows in and out of Stark Industries, Tony often comes to me for guidance. He has also borrowed my plane, The Errol Flynn, on occasion.

Before I run off to afternoon meetings, my thoughts turn to the replay of today’s tape.

The S&P closed off .34% or -3.64 points. The NASDAQ closed positive 5.18 points or .24%. Spot gold was off $3.25 and sits at $1,002.90. Oil futures closed lower by 3.57% to settle at 69.50.

Friday Night Announcement

After a strategic late Friday night lowering of guidance, Potash (POT) gapped lower this morning. The bookies — who make money no matter where Potash trades — were out in full force and their comments boosted the stock off it’s lows at $90.82 to close at $93.09. Broadpoint AmTech reiterated their buy rating, price target $116. BofA/Merrill maintaned their buy rating, price target $114. Fading the crowd was Soleil Securities, who cut POT from to hold from buy, price target $88.

Friday night press releases are an ominous sign. If I owned any Potash, I’d be selling it as fast as I could.

Caterpillar Stats

In other news of interest, Caterpillar (CAT) released dealer statistics for the June to August period. Retail machine sales were down 48%. CAT has rallied from the low 20s to the mid 50s since March. Valuation seems unjustifiable here, especially when the forthcoming rally in the dollar is factored in.

Ponzi Accounting

One of my favorite shorts of yesteryear, Prologis (PLD) was back in the news today with an announcement of a consent solicitation for $2.96 billion in debt securities. Prologis has taken advantage of the market strength over the past 6 months to — through various mechanisms — raise an exorbitant amount of capital. The accounting at Prologis continues to resemble that of Enron. At some point, the common equity in this company will be wiped out. In reaction, Wall Street will respond with the ever popular retort: How could we have known?

Nostalgia

On September 23, 2008 I posted my analysis of Research In Motion (RIMM). In what was one of the largest profits on my P&L last year, RIMM moved from $100 down to $40 in just over a month. This year, sports analysts on business TV are pushing RIMM even harder than they were last. On a technical basis, the price action in RIMM looks healthier this year. However, the cycles run with the seasons. When RIMM lowers guidance this week, the shock factor will be of greater magnitude than last year. In what mirrors the timing of their release last year, RIMM is announcing their earnings on the same date — September 24th — and the same day of the week — Thursday. I own puts in RIMM and my nostalgic mind is counting down the time until their numbers hit the wires.

Rimm - September & October 2008

The market is gearing up for something big and I’ll continue to document it here — where as always — the beat goes on.