About a week ago, there was this big buzz around trading community with regard to the upcoming bank stress test. Even though the official test results will be released tomorrow, the market has managed to find out most of the results by today. It is not a surprise, the result as important as this does gets leaked early. It was done purposely by the government officials and today’s headlines were basically official PR‘s through news outlets. Why? We think the policy makers wanted to make this stress test announcement as non-dramatic as possible. Can you imagine what tomorrow's trading environment would be like if everyone was being kept totally in the dark in regards to the test results? In most investor eyes, it was definitely the smart thing to do as it's taken out the risk.
The NYT notable headline we ran before Monday’s ..”more hope than fear”, quoting gov’t officials was the opening of the faucet.
The question now arises, will it be a sell on news event? Based on today's reaction though, tomorrow is going to be less of an event than most people would like to have believed early this week. After today’s 7% rip, SP financials are almost flat for the year. One way or the other, investors voted with their money, many expecting capital needs would be a negative are left scratching their heads. At this point, we shouldn't argue whether the up move is excessive or not. All we have to know is that, the reaction so far is positive as it helps the overall market sentiment going forward. It's a turning point in that sense..
Speaking of the rest of this market, we had another strong day in some of the commodity stocks. Results from ANR simply moved the entire group up and the strength in oil related names helped a lot of plays on our commod’ linked plays. Solars, coal, oil, shippers are all directly or indirectly benefited by this theme. The inflation trade idea here following Treasury moves in late March has really picked up steam the past week, but might need a dose of cold water very soon. Other sectors including casino, some techs and some earning plays have been consolidating today. We remain buyers of our favourite ones on pullback.
In after hour action,CSCO reported some decent number and stock is up a little. For the longest time, CSCO hasn't really mattered in this market. It was good to see a mild positive initial reaction, but , Chambers didn’t give a glimpse for growth over the horizon rather only a stabilization word. Is this good enough (stabilization), or is this going to get 'old' as we've been hearing a lot of it.
The sell on the news/ cooling off period has 3 reasons to occur this week, 1) Stress test 2) Employment report following today’s ADP both being cooked in, 3) CSCO no growth in sight all statement at SPX 921 / 3 day RSI at extremes may give the market a reason to take a breather. Anyways, it doesn’t hurt to be sceptical late in the week. Most care with high-beta, fastest flyers, they would succumb to more profit taking than the rest on any sell -off, if one occurs.