Market Soapbox & Observations 03/08/07

THU, broadbased followthrough on TUES surge, DJIA +68 on lower volume and nice internals. All UP cept XAU.

Bonds down 10 yr yield +2 bps 4.51, $ up vs 117.08y & vs 1.3132E, gold up $653, WTI crude down $61.55.

Large WEN aftermarket NYSE volume spike 1,211,804,800. Overnight, European & Asian markets up over 1.5%.

Pre-market NDX up 1%. Volatility still heading down from Mondays peak while volume has dropped to average.

Yesterday, we sided with a nice pop continuing to around SP500 1410 OR an early breakdown below 1380 and perhaps something nasty comes out of the woodshed a wee bit early?

To review 02/22 1461 multi year peak, falling off a cliff to 1373 by 03/05 , then 2 of 3 days an oversold bounce up with today's nice pop to 1408 early, then a rapid fall catching support at 1400.

Something nasty can come out either now or perhaps after this bounce continues to 1425-1428. This could play out with a Friday sell off dropping to 1395 - 1397. Note: there is a 10 year auction Tues which could effect liquidity.

Followed next week by a quadruple witching options expiration short covering surge to the SP500 1425 level, and correspondingly the NDX to 1783, just short of its large morning gap down 02/27.

A bad PPI, CPI late week could take the winds out of the sails, while the following week brings more housing collapse and the FOMC meeting, setting the stage for a termination of an "oversold" bounce around the 1425 level.

Yesterday's 45 minute drop into closing on DR Horton's CEO comment "2007 is going to suck".

Today's 2 - 2:30 market drop was precipitated by bankruptcy rumors re: #3 sub prime lender New Century Financial.

In the next 2 weeks, expect a news blurb regarding a CDO/MBS squeeze, where a passive MREIT shell (carry trade player) or major sub prime lender goes under...

Bringing something really nasty out of the woodshed and making last weeks plunge look like a small appetizer...

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