The rules have changed again!!!! Only this time it may be a good thing.

This from our business partner AP News

Government to clarify accounting rules for banks

AP Business Writer (AP:WASHINGTON) Federal regulators on Tuesday clarified accounting rules for banks in a way immediately embraced by the industry, which has been seeking relief that could boost its balance sheets in the financial crisis.46 minutes ago

By MARCY GORDON

The Securities and Exchange Commission and the Financial Accounting Standards Board issued clarifications to the current rules, and said more detailed guidance is coming later this week from the standard-setting FASB.

The banking industry, which has seen its mortgage-backed assets plummet in value, has been pressing the SEC to suspend the so-called “mark-to-market” accounting rules that require banks to value their holdings at current market prices, even if they plan to hold the assets for years. A possible addition to the $700 billion bailout bill being considered by Congress would reaffirm the authority of the SEC to suspend them.

But the head of a policy group backed by the biggest accounting firms warned lawmakers against such a suspension, saying it would hurt the interests of investors and the capital markets.

The principles of mark-to-market accounting “are rooted in the fundamental virtue of transparency and are central to informed market decisions and efficient allocation of capital,” Cynthia Fornelli, executive director of the Center for Audit Quality, wrote in a letter to members of Congress.

The clarification issued Tuesday says that when an active market for a security doesn’t exist, “the use of management estimates that incorporate current market participant expectations of future cash flows, and include appropriate risk premiums, is acceptable.”

The guidance will apply to companies’ financial statements for the just-completed third quarter. It is “intended to provide increased clarity related to the practices that may be used to determine an appropriate fair value in the light of current market conditions,” said James Kroeker, the SEC’s deputy chief accountant.

The arcane accounting rules even intruded into the battle for the White House, with Republican presidential contender John McCain’s campaign lauding the SEC’s release. Democrat Barack Obama’s campaign did not immediately return requests for comment Tuesday evening.

The American Bankers Association also applauded the action, saying the new guidance “will help auditors more accurately price assets that are difficult to value under current market conditions.”

McCain’s campaign said he “is pleased to see that the SEC has finally decided to permit alternative accounting methods to mark-to-market accounting for securities where no active market exists. There is serious concern that these accounting rules are worsening the credit crunch, making it difficult for small businesses to stay afloat and squeezing family budgets.”

Sometimes it is appropriate to take a step back just to see what the larger picture looks like. Certainly the last few days have been heady enough for most traders. I am sitting from the sidelines taking a spectator’s role. The volatility as measured by the Average True Range is still too large for my blood.

That however does not mean I am not preparing myself for a possible trade.

There are 3 chief factors influencing my thinking:

1. The seasonal pattern that shows lows in the 2nd to 3rd week of September and 2nd to 3rd week of October. Following the October low we see a strong directional tendency terminating end December to mid-January
2. The 12-month swing (yearly trend) has given a confirmed Upthrust Change in Trend Sell signal that projects a minimum target of 867 to 768 basis cash. (Figure 1).
3. The 13-week swing (quarterly trend) has probably met a time and price swing target. If so we should see a 13-w line turn. Minimum price for the line turn is 133.82 but this will change week-to-week in the coming weeks.

The shorter timeframes show 3 sideways markets:

• Figure 2 shows two of the longer-term profiles of the sideways price action. Basis Dec, we have targets for the upmove at 1301 to 1313.
• Figure 3 shows the sideways market that began September 17. Acceptance above 1265 projects a target to at least 1303 basis December.

When I examine the charts, I see the immediate bullish factor as being the decrease in volume on Monday’s low when compared to the low on September 17; I see the immediate bearish factor as being the rally last night that progressed on declining volume (except for the last 60-minute rally) – suggesting all we saw was a short-covering rally.

Here’s my best guess on the structure:

1. We’ll be seeing choppy price action leading to higher prices AFTER a re-test of the 1106 lows (basis cash) as the 13-w endeavours to turn its line up. The target for this move basis December is 1300 to 1328. I expect to see a 12-m probe above 1290 but not see acceptance above it – certainly I would not expect to see monthly bar acceptance above 1328.
2. I expect to see these targets meet near the end of December 2008.
3. I expect volatility to shrink as the market heads north in December.
4. Acceptance below 1106 would suggest the seasonal tendencies are absent this year – such acceptance would paint a very bearish picture. I’d expect volatility to remain the same as the present one or increase on such acceptance.

Figure 1 12-M Swing S&P Cash

Figure 2 Market Profile Daily S&P Cash

Figure 3 Market Profile 30-minutes Sept 17 to Date