Over the weekend, our rally thesis was that we are waiting for something to happen from Washington and it looks like market is exactly playing into our thesis. AMC, we are getting headlines hitting of a 'catalyst'.. TARP II/"bad bank"/ stimulus. Once again, market crept up and held up despite a barrage of not so rosy reports from many steel makers and AXP. Market is currently giving this message, 'we already knew this and what else is new'? The fact many bad reports didn't take stocks down gives us reason to believe that market is discounting the past quarter in many ways, and perhaps next quarter as well. Perhaps, all the chips are with Washington now and nothing else seems to matter for the time being. How long will this last?. Yes, from the reports alone, it feels that none of the companies are worthy of investment. Yet, stocks still managed to inch out a gain, most importantly pushing the indices close enough to 850SPX to know that with any positive news and this may finally be broken after multiple attempts, maybe even the next day. You can call it short covering, or bottom fishing, or value buying. Whatever the case, the mass panic selling action b/c of a disappointing report seems to be non existent these days. Signals of a further bottoming? We'll reserve the answer for another few months.
Again, markets being lifted slightly by the the financial sector. There's a high degree of expectation that the new administration will do something about the 'bad assets'! It is a very reasonable and logical assumption and there's a high probability that it will happen. Tomorrow, we also have a FOMC meeting which will shed some 'FED' light for the next little while. In addition, the new administration is busy lobbying for its $825 billion stimulus plan. Regardless how the result comes out..bad bank..stimulus, we feel these will be positive developments for this market. For the short term, it does feel that our policy makers are putting a stop to any potential market slide. Right now, nobody seems to want to get caught short this market.
We at DJIM here are playing exactly like what we said in our journal. We are using pretty much any weakness to buy some of the 'quality' stuff out there. This includes some of the financials like NTRS, PBCT, JPM, GS... some of the selective commods as well.
There were a bunch of steel reports today and most of the companies reacted well 'today', even though we can guarantee firms will slash targets and EPS expectations starting tomorrow and it will be interesting to watch how these stocks act a week from now. That will be telling, participation in a upside move with the broad market if one happens, is usually not. X, may just get over break even by Q2 after a nice size operating loss to be in Q1. Also, BTU's report gave the entire coal sector a boost, but this co' is more diverse than most we follow and has one of the best operational teams. Not all are of the same mold to go through a tough 2009. To top it off, the slide in crude price did not seem to have much effect on its components or the market. Both OIH and XLE hardly moved.
Solars, notes in Comments-alert section.
All of these are giving market participants reasons to breath some confidence back into this market. SPX is most likely to be ~850 area overnight and we believe the next major resistance is not till its 50 ema which is around 870 or so. It is not that far away so we have to get ready for a potential move toward that area and possibly beyond.