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.

Potential change of leadership....

If this market were to continue higher beyond current level (not necessarily tomorrow with important EPS' due),  we feel that there's a very good possibility that we'll need to see a change of leadership.   Up until now,  there's no doubt that the sector that has carried the weight for the recent run up is the financial sector.   If the financials behave well, chances are,  we'd have a strong day up and vice versa. Results will be released May 4th with specific criteria on how each bank will be tested to be released April 24th. 

Today's big event was the earning report from JPM.   Just like most people predicted, JPM's report did not disappoint.  At the beginning of the day, we were hoping to see the JPM reaction would lift the entire sector, if not the whole market.   It was not the case as the financials lagged (GS, WFC  specifically), as we saw some profit taking among various financial stocks right after the opening bell ring.    All day,  it just felt that there's bit of exhaustive action to keep the financial sector in the green.  This is somewhat troubling that despite a very rosy report from JPM,  the selling on news in not abating.  We just can't help but wonder if the good news is "cooked" into the current price levels.   Keep in mind, most of these financial stocks have rallied tremendously from their recent low and it's totally realistic for them to be in "good" consolidating mode after outpacing expectations beginning with WFC.

Clearly, we saw the underperformers (tech) yesterday become the outperformers.   Maybe, it was just a pre-run into a specific stock earnings.   Yesterday, the bankers- brokers squeezed into JPM’s and today the tech into GOOG’s .   Still,  other sectors, the ones that aren't in as much spotlight, or the lagging sectors were picking up the pace as the day went on.  We are referring to our fave commod' group (steel stocks), material stocks, and oil stocks.  Even TIF,  noted a few times in the past 3 weeks in Alerts had one of the nicest breakouts of the day.   When you add them all together with tech, they make up a healthy chunk of the market.  Can these stocks rise to the occasion and take over the leadership?    Can the market move higher without the financials?   We feel it's definitely possible.   As long as the financial stocks hold their ground and consolidate,  there's always a chance for other sectors to step up and take over the lead.   Earning reports will provide such catalysts for such a move.

Tonight AMC,  we had GOOG  report an inline number, but they also guided cautiously for next two quarters.   This is actually fine by us as more and more companies are being conservative and realistic about the economy and market.  INTC did it the night before and now Google did the same.  Can they set themselves for potential upside surprise down the road?   It would be a smart thing to do if that's what they are shooting for.

Tomorrow morning, we have GE  & C  coming out with their reports.  If JPM's report is about the health of our financial sector, then GE's report is about the health of the US / global economy.  Lots of focus will be on to  see how GE’s business is doing worldwide & GE capital.    Yes,  GE is that important once again as years ago and it can potentially move the entire market in a significant way.    Tomorrow, is seemingly the perfect day to begin a much awaited “ sell this rally” correction with C, GE on the podium.

Bottom line,  we are inching higher toward the resistance level in the SPX 870‘s.  Even though the level may or may not be that meaningful,  it seems that's the level many of the traders are obsessed about. “Tailwinds to run over 860??...Of course,  earnings will dictate,  but if we keep getting surprises we'll have the shorts giving up and we can really overshoot 860.   The reason is this is where most of the shorts are set up from mid Jan -Feb!!.”.   We are clearly seeing shorts becoming nervous and covering around these levels. 

Earning season has just started and we have a lot more reports next few weeks. So far, so good and lets hope it stays that way!.  If NOK can have a 90% profit drop y/o/y and pop, it can’t be all bad for earnings going forward.

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.