Morning update

Despite closing relatively flat on the day, Friday was ugly.  Not even a better than expected jobs report could support this market.  We broke the 1178 support in SPX and it felt like Flash Crash 2.0 was just around the corner when ECB announced a bond purchase program.  Market rallied hard on this news - about 40 pts.

Couple take aways:

1. Gold did not sell off as the market ripped higher.  My thesis is gold is the ultimate source of funds, and as equities rally, gold investors will sell their winning positions to raise cash to build positions in beaten down stocks.  Also, I think uncertainty is a big catalyst for gold's parabolic move higher, so any news that reduces uncertainty should lessen the demand for gold.  However, ECB's commitment to quantitative easing is positive for metals.

2.  Financials continued to lag - C and BAC both down around 8%.  Seems like short sellers are leaning hard, trying to break HF titans who have massive positions in these banks (Paulson).  Meanwhile sell side institutions like Wachovia and S&P rushed to downgrade and cut price forecasts.  BAC also announced claims from Fannie Mae and Freddie Mac will cost more than previously forecasted.

Friday after the close, S&P goes for the jugular and downgrades US debt to AA+. Not exactly unexpected news but a brutal blow to confidence.

Monday morning is a bloodbath across the board with futures ranging from -2 to -3%.  Treasuries are slightly higher, a counter intuitive safe-haven play that will soon reverse (I'm looking for a bounce in TBT).  Gold, the ultimate safe haven currency, is up 2.5% breaking 1700.  BAC down another 8% pre mkt on news AIG is suing them for 10 bn.

Interesting to note that while the futures are down big, we are sitting just above the lows on Friday, leading me to believe that a lot of this is already baked in.  Attention is on Europe, and at least for now the bond purchase program is having a positive affect - Spain and Italy bonds are ripping, lowering their 10 yr borrowing costs by about 80 bps.

I'm stepping back for now - looking to short treasuries once they settle down and possibly the financials on any QE3 announcements.  My gold short idea looks like its officially broken - ECB QE and US debt downgrade are both very positive catalysts.

Levels: looking at Friday's low of 1168.  Below that, 1150.