Coming around?..

After today's huge squeeee--ze,  it goes to show that this market still can dish out some amazing gains, despite the terrible economic and financial circumstance.  We have often said stability from the financial sector is not only crucial, but necessary for the market to stage any bounce/ rebound of any duration.  We not only surged past the SPX 820 level,  but we are looking to be on deck for the SPX 860 level.  The action is fast and furious this week stemming from volatility..“Intraday swings are more likely to return in this environment…up and down’. (before last Thursdays trading day).

However,  this volatility is still just fine for traders, sometimes even great, as we’ve all become more experienced as to how to deal with it after a crazy year, day after day of such.   If a trader did not take advantage of today's wild gain,  they're simply not prepared.   Anticipation is half the battle.   Here, at DJIM  we only threw out the word ‘rally’ about 10 times yesterday,  not calling for one, but being ready for one, which only matters ..lower buy range …banking selling shouldn’t last”….heading into the trading day, including, “ a relief rally (maybe imminent) occurs..”.   As we’ve discussed, preparation is key to any success as a trader.  We try to provide that with your pre- market journal. 

Today's financial action looked particularly well, especially from the likes of JPM  and GS. (led partly due to NTRS PNC  vs, SST  day before report).  Sentiment reversed for a day.   To avoid the speculative banks stocks (C,BAC etc.), you know these are two we favor to trade when we all see the sector moving.   In after hour news, following BAC 3pm insider buy headline,  JPM's CEO reportedly bought 500k worth of its stock at $22.95/shr.(11mln+).   This is definitely encouraging and confidence boosting kind of news the market is looking for, for one thing it was abating "Nationalization talk",  even though we’re not sure why JPM was thrown in so much with the dirty bath water (C,BAC) the day before.   In addition, the back to back good reports from IBM  and AAPL  today are shifting investors' sentiment from overly pessimistic to "not as pessimistic" and taking focus away from negatives in the market place.

We are hardly out of the woods yet.   But, it does feel like investors are looking for positive news catalyst to rally this market.    Can you imagine if some positive action from the government comes out with regard to the financial companies?    This is what we feel people are banking on today.   Sure, prior to today it was all doom and fear.    Perhaps today's sentiment is that it's just a matter of time before the good news hits the street.   Can investors change their feeling just like that overnight?   Well, what you see is what you get and we have to play by the market action.

Technically,  it just feels that it's going to be tough to challenge November's low this early in the year. Honestly, we don't know how it's going to play out if it gets there at any point.   The one thing we do know though is that as long as the financials hold their ground, this market has almost no chance of testing last year's SPX low.   We are still near the bottom of the range as oppose to the middle or top as discussed yesterday.     Right now, we'd like to see some consolidation of gains from today,especially from the market movers.  Include some profit taking early tomorrow.   We also don't mind some smaller plays getting a firmer footing,  but usually they catch up as oppose to lead this market,  this might be where the commodity equities show life.

For tomorrow, the best bet is for this market's heavy weight to stabilize and not display the wild gyrations we've seen the last few trading days.    We are hoping today action is NOT just a one day wonder and we return to doom and fear tomorrow.   Come on Obama and your team,  it's time to give this market's some much needed magic healing.   We also have some interesting reports to come out tomorrow including GOOG, MSFT and ESI (alert and a pre-run late into earnings), POT.   It will be a busy day!

underlying bid prevailing..

Underlying bid prevails today as the bigger fish go fishing...

Just some scattered trading thoughts,  mostly due to fact many aspects of this market/ plays remain the same since late last week.

Two characteristics of the market still showing,

1) Shorts are NOT starting fresh shorts due to upside risk of news.  Ones that pressed with downside were left dazed and confused.  Also we still feel the Hedgies/ Institutions, MF’s pensions (whales) are chasing equities to pretty up their books month end/ Q end.

2) We kept mentioning the underlying bid providing support yesterday, we thought and got it in the morning as we extended higher (helped by durables, housing) after not such a nice close on Tuesday.  We alerted in the afternoon, we were aware of Whale buying the Industrials in the morning (this spurred by eco‘ data), the idea was they would come into the closing broadly.   Remember, this is mostly the time whales buy,  this is why last 30 minutes to a close is such an important ingredient to the health of the market.    Besides, we didn’t think the low volume downside to under 800 or the Treasury auction news was all that important.   Other news providing some headwinds was Trsy asking for authority to seize hedge funds and worries they won't just let banks leave the TARP in near-term.    Almost to the minute of alert,  we got a V-shaped bounce started which scurried out any shorts that pressed into this downside move thinking this rally was broken.     Again, the underlying bid is there for now.   

Remember,  instead of scurrying around the find a stock that may work during/if we get a big move such as this 140DJIA +reversal in minutes,  just go with SPY/SSO or even better go to JPM/GS  to get the most out of a move.    We’re having some trouble getting through  ~820SPX area,   but this kind of close will make everyone think twice..the bulls (encouraged ,confidence) and bears (losing faith, jittery).    This is looking like more digestion above 800 before a move higher, instead of indigestion.  A meaningful break of 820 very possible tomorrow. *eco data tomorow morning.

Sec's

We had short covering early in the steels , again X  leading the way.   Considering,  we are about a week into the inflation linked equity trade,  we succumed to quite a bit of profit taking as the broad market sold off.    Always remember,  if your stock/sec has been fastest to the upside,  it will be one of the fastest down as the broad market turns.    This trade will have hiccups, so as we answered in the forum last week, everything is still a trade, not an investment, so take profits along the way.   We've all learned the past 12+months this a traders market.    As far tech/Naz related stocks,  we had SMH $SOX  breakout after the opening bell,  but it got taken down with the tape.    $SOX,  we'd like this 230 broken convincingly to attract more interest,  including ours to go into the high beta's stocks.

More tailwinds than headwinds...simple for now.

Ouch!

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.