Where is this going?
Tuesday, August 11, 2009 at 07:59AM Another late day rally, this time after sellers had taken the SPX down 18pts since intraday Friday. Even as a long term bull, we are beginning to have doubts about the longevity of this rally at this point. Seemingly, we have the bullets to take this market much higher from this level in the form of eco data/ earnings forecasts, but there is nothing on these 2 points this week to help our cause. The question is, are we really in such a hurry? The ultimate target for our current rally would be somewhere near SPX 1040-1050 by Labor day. On the other side of things, "losing momo," as we're doing increases risk to break 1000 today's low, 993 would be next and a break there would be a trip to 982 levels for a ~4% correction from high. A trip to 1050 will have to come much later if this occurs.
The truth is, we aren't particularly enjoying what's going on out there.
The current rally has no doubt been shaped by the SPX tape. Sure, it's the gauge of this market and many if not most market participants use SPX as the barometer to reference their performance with. However, there's also COMP. To us, COMP represents more of a growth oriented segment of this market and it’s NOT just technology related. Recently, as the SPX index inches higher, COMP has largely been lagging. This also directly reflects in the plays on our shadowlist as well. This is not to say that we feel this market is doomed. We are just very uncomfortable with the narrowness of this latest up move. Sure, SPX may head to 1050, but until more companies participate in this rally as discussed last week, it won't be a rally enjoyed by everyone.
Earning reactions have been rolling strongly still from this market. This is a strong sign of the health of equity market. As we said before, having a good earning reaction is still better not having one, but it’s the really the junkyard stocks of 2007-09 that we’d never touch that are getting the most attention now. It just feels that funds out there are still hungry for stocks and are going for the scrap-heap. Putting cash by money managers/ retail to work is something we've been saying for a while. Insiders are selling mountains to take advantage of the rally, but the surplus is being eaten by money managers/ retail. However, we like to put our cash into plays that matter to us.
As usual, today's standouts include some Chinese plays and a few earnings plays. We liked how our long followed EBS followed through with another strong day, and as well as a resurgence of SWI. We had TBI breakout for ~6% from alert, but even it gave up gains and makes the breakout look vulnerable. Consecutive days of good action is hard to find in individual plays. We’ve seen a lot of failed breakouts lately which also makes us nervous as to the health of market, so take some profits when you do get a breakout after holding or buying something just before such a move. As we said , this week we’re light on Eco. data, but we do have a Fed meet beginning tomorrow. The tone of Fed will be watched closely and it can potentially be a catalyst to move this market up or down significantly.
