Cashin Comments

FAIR VALUE = -240
BUY PROG = -140
SELL PROG = -340

CASHIN'S COMMENTS
THURSDAY APRIL 23, 2009
[AN ENCORE PRESENTATION]

On this day in 1985, one of the savviest marketing teams at one of the savviest marketing companies in history stunned the world with a product announcement. They proclaimed that they were phasing out their main product and replacing it with a new improved version. Pretty tame stuff for most products.

But this was no ordinary product. It had been around for nearly 99 years. And, during that period, it had grown to be one of the most widely recognized items on the face of the earth.

The product was Coca Cola and management launched its replacement, "New COKE", with an expensive and gaudy promotion. Then something strange happened. Folks began hording "Old Coke". Supermarkets were threatened by consumers with boycotts if they dared to run out of the real thing. Letter writing campaigns began. Some called for a congressional investigation.

The backlash was so great that the company relented. They re-introduced the old product as "Classic Coke" and sales actually increased. Cynics, assuming bright people are always bright, began to claim that the whole thing was a clever ploy to sell more Coke.

To mark the event, commingle with the brightest and the best at the MBA lounge. But before you order anything check the fire exits. Then kick back and order an Edsel on the rocks. Don't try to gulp down the olive - - there's a pit in it.

The stock market was certainly uncertain yesterday but it had little to do with marketing and branding.

Rally Meets Resistance And Gives Up After Fourth Failed Try – Wednesday's trading looked like it might be another repeat of the pattern of opening lower and then rallying, led most often by the financials. The pattern didn't work as usual, however, as the bulls got frustrated by several things.

The early sharp rally bumped into resistance. The Dow stalled as it entered the 8040/8050 resistance band. The first stall occurred around 10:15. The bulls hung tough, however, and made another assault shortly before noon. When that try failed, they pulled back into neutral territory. They tried and failed two more times late in the day. When resistance proved to be a virtual steel ceiling, the bulls took their gloves and balls and sulked off the field. The rally (?) instantly imploded.

The Dow's struggle with resistance was paralleled almost exactly by the S&P. We had noted in the napkins on Wednesday that the S&P had a resistance band at 860/865. The morning rally failed at exactly 860. The two late day attempts failed just short of 862. The uniform performance at the resistance levels added to the concern when that resistance repelled them.

While the bulk of the action seemed technically driven, there were other influences. The mid-day pullbacks coincided with headlines about GM possibly missing a billion dollar payment deadline and another claiming that the Taliban may take control of yet another province in Pakistan.

There was also concern about rollover action in Wells Fargo and McDonalds.

One of the late day influences was a pronounced weakness in the Treasury market. The yield on the ten year rose to 2.94% that's the highest since the Fed announced it would actively buy Treasuries. Recall what we wrote yesterday:

Pushback To The Fed? – Our friend Kevin Ferry points out that yesterday the Fed bought $7 billion in Treasury notes (7 to 10 years). Quickly, thereafter the ten year dropped a point. Is the growing deficit need starting to overwhelm Fed's efforts to aid? Something evil this way comes.

We will watch the yield on the ten year very carefully. It may send an alarm signal if it rises above 3.05%. There's a saloonful of Treasury auctions due next week and then there's the May refunding cycle. Tough times ahead for bonds.
Cashin's Comments
Thursday, April 23, 2009
Page 2


The other thing dragging on stocks late yesterday may have been another vague rumor on the stress test results. As Mohamed El-Erian pointed out in Wednesday's FT, the stress test results have become the key focus of attention for the financial universe.

Net/net the action was a clear setback for the bulls and looks to have handed the ball back to the bears.

Cocktail Napkin Charting – As noted above, the formidable resistance (Dow 8040/8050 and S&P 860/865) presents a strong challenge to the bulls. Those resistance areas fall very near the Fibonacci 61.8% retracement level of the move from the early January high to the March lows.

On the support side, we'll look to the area around the 20 DMA which on a slightly soiled napkin looks around 833/837. Breaking that could set up a test of the 800/805 critical support.

ETF Influence – There is a growing level of chatter and speculation on the floor about the influence of the leveraged ETFs on the markets. Some contend the ETFs may be exercising influence in the final hour. Others contend that's hogwash. We'll try to delve into it to see what is credible and what is not.

More Stress Ahead – Bloomberg reports that the Administration is considering making public the capital needs of the banks when they release the stress test results. Here's a bit:

April 23 (Bloomberg) -- The Obama administration may direct banks judged to need capital after stress tests to disclose how they plan to get additional funds when the government reveals the results May 4, a person familiar with the matter said.

Officials are discussing a release that will show the assessments for each of the 19 biggest U.S. banks, said the person, who spoke on condition of anonymity because a decision hasn’t been made. Lenders would specify whether they will issue new stock, seek a conversion of government preference shares, or rely on additional taxpayer funds, according to the person.

By pushing for detailed disclosure, the administration is seeking to give the public the ability to differentiate the health of the nation’s major lenders. The move would also address the concerns of some investors that banks needing extra money will be punished without a detailed strategy already in place to get the capital.

This could be a live hand grenade. As Mohamed El-Erian suggests, the stress test report is fraught with danger if not handled carefully.

Consensus – Keep a sharp eye on the Treasury market. Sizes of next week's auctions will be announced at 11:00. As we noted on CNBC days ago, the markets are nervous again. Maybe they have a reason to be. Stay wary, very wary and very nimble.

Trivia Corner

Answer - 1) bold; lift; about; type = Face
2) boy; ding; brick; cricket = Bat
3) lance; spirit; germ; admission = Free
4) empire; delight; taffy; towel = Turkish

Today's Question - Something to buzz about. A portable hive of bees was driven near a meadow. When released, one-fifth went toward the heather; one-third toward goldenrod; while three times the difference between those numbers went for the buttercups; leaving one undecided bee to buzz about. How many bees were in the mobile hive?