Which story is more interesting over the weekend?. Is it the, "We don't know how we gonna bail out the auto industry from White house", story or "Bernard Madoff scamming off potentially $50 billion dollar from various high profile investors". You be the judge! While both stories can get some endless discussion from all levels of investment community, it is in our opinion a draw between the two and unfortunately makes for 'life reality' TV for so many. Behind these scenes is a tradable market and we only need to concentrate there.
Wait a minute! Doesn't the auto bailout story seem more urgent and 100 times more significant than anything else at this moment? Oh yes definitely, but based on the way markets been behaving lately, we aren't sure if it actually matters much or at all. The market was back to shrugging off setbacks as we all saw..."a chance for a Friday short covering bounce, maybe to 850-860". The bounce almost reclaimed 885 SPX broken level from previous trading day at one point. As noted in Alerts late last week, sells off are shorter in duration and can trap a few Bears.
Our point is, despite some "worrisome" chain of events surrounding the whole Auto debacle, the stock market is taking the whole thing quite well. Still, there's a high probability that parts of auto industry will fail two or three months from now despite any short term injection. Yet it seems this market has "sort of" priced in the worst case scenario. This is in addition to a number of really bad economic/ earning reports we have witnessed last couple of weeks. Basically, market has rather taking ALL of the bad news really well.
When we speak of the market, we usually mean the SPX and COMP, and DOW to a lesser extent. If you look at some of the individual plays, there actually has been a pretty good rally going on. Look at all of the steels, oil/gas, shippers, agri. and every major infrastructure play. Sure, not every play has gained the same kind of long momentum, but there's enough of a list out there that can make some traders smile.
We have to pay some specific attention to various sectors when we approach the current market. Why are BDI rate (Dry bulk rates) going up? Note*..this weekend, Baltic Dry index is getting more press for its "record" rise amid speculation Chinese steelmakers have been importing more iron ore to take advantage of a collapse in shipping costs. (DRYS EXM TBSI GNK ). Why are all of the steel companies going up despite lowered guidance/production from just about every U.S stock?. We talked about the Chinese export figures/ Obama plans playing a role here and so FLR doesn't go down that much after a Goldman downgrade. Why are people so excited about the recent Haynesville drill results? We can attempt to answer all of these questions with an educated answer, but instead we feel it's probably better just to point out the obvious. These sectors are in a RALLY mode as commodity stocks are showing a "Pulse"
As we have been saying in the past week, we feel that the trading dynamic has changed some what. It has changed from some very panicky and volatile environment to a much more stabilized and oversold environment. These psychological changes work well now that the hedge fund liquidation seems to have subsided for time being.
So, we have a rally and we may continue to get pushed up right through the end of year. Our trading plan has been simple and that is to trade what's currently working with the market. We are trading long on Gas/ Oil (weather is helping also), some steels and even a couple of shippers here and there.
Early in the week, we have GS/MS reporting and we feel a lot of downside news may also have been priced in the stock prices already. It's reaction will be critical to a year end rally. Of course, we have to see it to believe it starting Tuesday morning when GS reports.
As we said heading into December 4th trading,.."In an almost perfect Santa Claus rally world, we'll get these data figures 'shrugged off'!. Do you believe in Santa Claus?"
So far for this year, we do believe!. We're seeing all setbacks shrugged off.