It looks as though the markets were being held up high for the expiry of the October options. Talking of market highs it is interesting to note that the high for the December index options for Wednesday, Thursday and Friday were 5243.5, 5245 and 5245 respectively. A clear triple top. Is this significant? Probably, the market is way ahead of its self and reality has to kick in sooner or later.  The FTSE having surged through the last resistance point I mentioned last week has now created a new one at 5245.  There is also a long standing resistance level at 5300.

Much of the rally can be laid at the door of the DJIA. It managed to close above the 10,000 level for 2 days. It could be a short lived celebration.  In the last week oil has gone from around the $70/bl to $78.50/bl and the US dollar has lost ground against virtually all currencies. There is talk in Australia that the Ozzie dollar will be at parity with the US dollar and even go past parity in the not too distant future.

So what caused such irrational exuberance to drive the DJIA over 10,000?  Part is that 79% of the companies that have reported their earnings so far have come in “above expectation”. Discounting the banks, this has been due to “cost cutting” (read laying off workers). This is something that cannot be repeated over and over again. The favoured “Big Banks” (those too big to fail) are having a field day, borrowing money from the FED and lending it back again.  Also most of their huge profits have come from “trading”. Another reason we have seen such a big rally.  The smaller banks are doing it tough. Another failed last week bringing the total for the year to 99. The really bad news for banks is only just starting.  A big proportion of a banks lending portfolio is in commercial loans, and these are turning sour at an increasing rate.

The news is no better on the housing front, US foreclosures jumped to an all time high of 937,840 in the third quarter, that is a 23% increase from the same quarter last year. Interestingly the proportion of sub prime mortgages in forclosure is decreasing but the proportion of prime loans being forclosed is increasing. Then we have the ARM’s (Adjustable Rate Mortgages) that are resetting to (much) higher rates. 46% of option ARM’s are currently 30 days past due, despite the fact that just 12% have reset to higher payments.  There is no light at the end of the housing tunnel yet.

Again on Friday the Michigan Sentiment reading was announced.  The market was expection a result of 73-74 but it came in at 69.4  The market might think all is well, but try telling that to the person who has lost their job, or taking less money for working harder, just to keep their job.  Then you have all the new workers straight from school or college that are looking but can’t find a job.