We know, this isn't a kind market. We know, more than ever, we have to keep our heads cool and act rational. We got another 200 pt+ Dow day, yet this is probably the most dangerous day to be long anything overnight. Sure, the drop in oil price has been an excuse to rally the market, but we still have to know what lies ahead before pushing the buy button in a frantic fashion.
Financials have had a great two day rally and it appears to be hitting the brick wall after MER's earning tonight. Citi is more important in the morning. Yes, the JPM/WFC reports were inspiring, but don't forget nobody ever put those two in the "Citi/FNM/LEH" category. In other words, what's good for JPM/WFC does not necessarily translate into good thing for other financial companies. As far as we are concerned, this is nothing more than a relief rally or short squeeze. The poor performance today of past leaders AAPL, RIMM is also not very inspiring. Also, we just couldn't stop laughing about SEC's new measurement against "naked short selling"! We guess FNM/FRE had a little more influence than OSTK attempts. Lol This is a bit pathetic, still! In actuality, short selling only plays a minor role in the decline of these financial stocks since majority of the shares are held by mutual funds and "long only" institutions. Is it a desperate measurement to stabilize the financial market? Maybe, but we'll see about that!
Commodity stocks simply got whacked today, there's no other way to describe the action. This one was not like the other days, this one had volume behind it and the 'domino effect' ruled the day. We warned further before the open, these commodity stocks were no place to hang around in with a fast falling oil price. What does concern us quite a bit for the near future is the change in sentiment among traders toward the commodity group(s). Basically, twice now they've beaten senselessly in as many weeks and this will create a high degree of fear for those who are playing the momentum game. We are definitely going to stay shy of these groups until the volatility subsides and action stabilizes.
Have we mentioned that this is a tough market to trade recently? Lol One thing that you can do to minimize the risk is trade extremely small/ limit number of holdings. When you trade a tiny size, any change in price movement, you would not hesitate to get out quickly. It's just human nature as it's easier to deal with a smaller loss. By all means, if you are not comfortable trading the names altogether, then stay out and park yourself in cash. Being in cash is the most conservative, yet most effective approach to a volatile and dangerous market. Don't be frustrated when you see the Dow up nearly 500 in a few sessions and you haven't done much. Do you really want to hold any financials overninght?. We don't, we know new opportunites will present themselves shortly.
In AH reports tonight, MER/GOOG/MSFT all disappointed investors to a certain degree. Tomorrow, with option expiration, it's likely to a heck of a volatile trading session. Also, we have the big bad "Citi" to report in the morning so things can get ugly. For now, we are playing this waiting game for the next earnings winner as expressed yesterday. Yes, we haven't used that term in a long time, but it just seems fitting now that none of the recent plays work with a sliding oil price. Really, all we need is a couple of good earnings winner to make this summer trading worthwhile.