It was ugly! For a number of days, we were wondering what it would take to bring down this market, we wondered prior to Friday’s trading day, “Tomorrow, is seemingly the perfect day to begin a much awaited “sell this rally” correction with C, GE on the podium”.
Well, a day off, we got a legit catalyst (BAC) today that simply spooked just about every type of investor and every sector, Notably, $BKX( bank index) >15%, Materials were under big pressure led by crude <8% on a very strong $USD. Industrials, Tech>3% (semi’s >6%)., There wasn’t an escape clause (sector) if invested over the weekend. You simply get hit!
BAC , the once hated bank among the investors, is back with a "NOT so inspiring" earning report (big deterioration in credit). This may just be enough to put the "we are still not out of the financial crisis" agenda back on radar with stress tests results coming. It is somewhat unfair though, especially after what companies like WFC JPM GS BBT have said in their report. This may just be a company specific issue, we all know BAC isn't a five star quality anymore and hopefully the market comes back to it‘s senses and understands there is a ‘best of breed‘. However, this is exactly (any excuse) what sellers wanted and were waiting for at these overbought levels to roll this market over. Rollover they did!
We closed at SPX 833, which is below the low of last few days. We'll see if any bounce occurs around here, it didn't look like a possibility with the ugly close. The next major support is around SPX 815 area and it isn't that far away. Without some major positive catalyst, we think the shorts will press below the 840 level to test that 815 area this week. It is therefore, extremely important for us to stay level headed and accept this as a fact. We have to play defensive on this sell-off until some more meaningful trend is established. Can today's action derail the recent up move? It certainly can and as a matter of fact, many bears even confirmed today's action as the "tell" to go short. We are not so eager or quick to jump on the bear wagon, but we do have to respect the opinion on the other side. We have to let this market settle and we have to see where this market will find its footing. When it settles, we'll then decide whether to play the recent earning stand outs or a specific sector. It is just too early to jump to any firm conclusion after just one day.
On the bright side, we do have ALGT , we’ve been watching it as it hit highs last week. Performed really well today after their conference call. This play has a particular high short interest/small float, so that may have something to do with its strength today as well.
Bottom line, we aren't going to be buying on dip on anything at this point and we will let this market settle down after today's ugly session. We have lots of Dow components, Banks reporting tomorrow morning and a few tech statements tonight for the market to decipher.