Financials save the day...

What looked like a meaningful 3 digit profit taking day in the works turned into a wild choppy trade late in the afternoon.   At the end,  SPX dropped only couple of points, DJIA dropped 39 pts and Nazzy lagged dropping 18.    Across the board, the group that stands out the most is the financial group (led by banks) and it's the only reason why we didn't close down triple digits.    It’s been awhile since we had this group try to take charge of the market,  today the Euro financials earnings provided the backdrop. Come to think of it, we haven't seen this group lead, only tag along with SP tape since MW’s upgrades. 

Is this a good sign where financials are leading while everything else lags?

Look at it this way, there has been some noticeable rotation of funds lately.    It's obvious money flow was into commodities(still) and financials today.   We don't know if this is just a temporary phenomenon and/or any long term implications.   SPX is the biggest indicator of this market and so it’s not a surprise that funds are rotating into various groups of this index in order to push it up.   In a way, we are feeling uncomfortable with this kind of action.    When market (index) goes up, we want broad participation  of stocks.    We want all those companies that are already benefiting from a recovery to do well.   Lately, it seems most , if not all of the stocks that we like for their earnings have stalled going up.    This could be temporary,  but it does provide a short term red flag for us in regards to broad market.

There's plenty of good earning reactions today as well, WFMI, GRMN, TNS etc.  Whether these names deserve this kind of reaction is not something we care to discuss.    The point we’re trying to make is most of these one day reactionary gainers will not have follow through.   This seem to be the trend lately.    Even though we are not admirers of this trend lately,  we still believe in the earning plays listed this Q going forward.  Quality will win out in the long run as we’ve seen in last Q’s plays such as WMS, CVLT and BWY  tonight continue to post quality numbers.

Today's Eco data gave an excuse to take some profit early and tomorrow's excuse may be CSCO's soft guidance.    Whatever the excuse, we just feel that we are due for a pullback.   We’d actually welcome a pullback because at this point it is the healthiest thing this market can do.    Having scepticism in this rally continuing is actually a good thing.    We know the economic recovery is going to take time and we are merely one quarter into this recovery.   The last thing we want at this point is for this market to run ahead of itself.   The sooner it gets to SPX 1050, the sooner the end is near we feel till later in the year.

Bottom line, do we go to 1030 first or 970 first?   We'd think the latter is more likely.   However, if the market decides to give it another push, we'd play along as well, but only if it's broad participation.   In the event of a market pullback, we'd keep our eyes on the new names listed this Q.   The ones that are behaving the best will definitely get most of our bids.