For a while today, it looked like we may be heading even lower, led by the Nasdaq (INTC eps) lag. It never happened, instead we got another familiar round of "late day" underlying bid buying that closed the market at day high. Perhaps, traders were looking ahead to ‘more important' earning reports late in the week. Of course, we are referring to JPM & GE , two of the most important reports for this week as their business covers more segments. Sure, GS 's trading reaction yesterday was a bit disappointing as it brought down the entire financial market (-7%) We feel this probably has a lot to do with the fact that the financials have gone up so much (selling on the news), as opposed to a general disappointment of the GS report. Today, the banks- brokers squeezed strong into the bell. We’ve signalled out GS/ WFC the last few days and thought a pullback was a nice buy opp’ yesterday, today’s open provided even a better opp’. What we liked today was these outperformed even before the 2:30 squeeze. The $BKX was up 5% alone after 2:30. Hopefully, we are seeing, "best of the breed" action and investors will just simply go with best going forward.
JPM 's report should carry more weight (than GS/WFC) because of it’s much wider impact for the financial sector. It’s very diverse covering a wider spectrum. What's good for JPM is pretty much what's good for ALL of the financial sector. As far as INTC reaction goes, we feel it was fuelled by GS sell reaction leaning traders to sell the news mentality. This is perfectly fine with us and the tale will tell if this continues or not after the reports late this week. Realistically, the market probably needed a day like yesterday to prolong a market run-up.
Now sectors..
Financial- linked , as we have said above, tomorrow's JPM report will give financial bulls a good reason to bid the sector higher. Although it's tough to guess the reaction at this point, we just don't believe JPM will come out with a disappointing report numbers wise. It will be in what "Jamie Dimon' says!. The strength was pretty broad today among financial linked equities, even the credit cards posted better than feared metrics. AXP did not go above 10% fear level headline noted yesterday, it’s stabilization should be a good sign for the card division at JPM. An equity offering from a regional bank and brokers (SCHW- PJC) reports were more good signals.
Commodity- linked, not all commods are created equal, we've pointed out recently be selective in the sectors/ stocks. Coal plays got dumped as BTU gave a pretty disappointing report and guidance. We'll definitely keep staying away from this group. On the other hand, steel and precious metal plays such as X, FCX, RS showed some good strength throughout the day. As far as oil goes, we are waiting for OIH to make up its mind. It's either going to break out of the range which held it for so long or it's going to drift back down for some better entry for us.
Tech'- linked, although INTC didn't ignite any excitement in the tech land, it did not cause any big damage in the area either. We have GOOG reporting AMC tomorrow and it can give some much needed excitement to the sector if there are good signs in the report. We are still very much being company specific in terms of our play selection. Not all tech plays are equal and their treatment would vary as well.
Bottom line, we held around the SPX 833 (overnight lows) noted as the support to watch today and we are back above SPX 850 for a potential shot toward the SPX 870's breakout levels depending on earnings reactions. We have earnings catalysts that can provide us with a nice up move...
...........but selling the 'good news' reports needs to abate!