Benign Consolidation Day

Following yesterday's solid accumulation day, today's action is what I like to call benign consolidation. The markets weren't down that much, and volume was relatively light. Not bad. Especially when the bears' cheerleader Doug Kass was out calling for a crash.

I listened to a PIMCO conference call today, and hear Paul McCulley make some good points about the credit markets and the Fed. His story was rather lengthy, but basically he said that at this point the Fed has to act if it wants to avert recession. I couldn't agree more.

The bears keep harping on the fact that the Fed doesn't want to bail out the hedge funds, mortgage companies, etc. But they aren't. Most of those entities are already toast. But if the Fed doesn't act, its the banks and homeowners who suffer. So ease they will. After all, the Fed played a big role in this whole mess, so its only fair that they help clean it up.

Investor angst ran high again today, with the put/call closing at 1.16, and the ISEE at 93. Yesterday, I posted how I thought there were too many looking for a "retest", and that as a result that it could be a crowded trade. I took some heat from the bears for that call, but today I felt a little better when I saw Barton Biggs come on CNBC and talk my book. Maybe he read my comments yesterday?

I also liked the action in the Yen today. As the chart above shows, the Yen dropped sharply vs. the dollar. At one point, it was the biggest one-day drop since January 2005. This bodes well for the carry trade worry-worts.

The SPX has now traced 50% of its decline from recent high to lows, so some pullback would be normal. But as long as its not vicious, I don't think it will take us back to new lows. And this is turning into a lonely call. Just the way I like it--