As one skims through a financial daily and sees another directionless trading day, one also sees a modest 2.7% SP gain YTD. But, that’s hardly the story as the real strength continues to be in underlying (sector) market. As covered here since the start of the year, the market internals began rolling and keep on doing so .."Some of the reasons to like the tape action is the breath. The number of new highs was positive as was the bid for higher beta sectors" ..Jan 4....."Traders (mostly) putting money on economic/cyclicals......and away from a highly correlated market trade ..." , led by financials, housing, materials etc. cyclical/beta sectors and out to single linked stocks. There is no single robust catalyst for this year’s gains, just the solid and improving eco’ jobs/housing data while Europe sleeps giving U.S equities a chance. As said late ’11 about ECB’s actions being ignored, they are no longer as it is seen being ‘accommodative policy’ now!. This is why it feels like Europe is sleeping even though this is a busy calendar week, which so far has been a non-event(s). The Euro drops/ ECB balances hitting fresh records daily are now risk positive. This is exactly what was a ‘ahead of the open’’ for days here, plus we’ve had China underperformance wary disappear for now. So, while the broad market benchmark SP is up 2.7%, the BKX is up ~10% and subjects traded here JPM, GS are up $10% YTD (Either trade the BKX or GS/JPM has always been the way here), while housing/ materials/ industrials are up 6-10%.. The BKX related dips are incremental so far and are still being bought give this move a resilience ‘feel’. (dips were discussed last week). If you take profits, you have to come back sooner than you thought as the sector keeps grinding higher day after day. Earning kicking off Friday for financials will test the rally.
Most are underweight equities as noted previously, catch up mentality may propel market to low 1300’1315 SP, but that may be all (at the May to July down trendline), as we had ‘junk’ going up big today with the higher beta trade expanding to a 'loser' trade. Every time we’ve seen ‘junk’ move in years past, we were nearing a short term top.
Today, the solar (TAN) frenzy >10% is a wary with cheap China’ related moves spreading out even further and speculative biotech’s in favor this week. If you want to trade cheapies, go on twitter to try and make money on these types. It’s never been a trading methodology here and today’s rally won’t change that because the China solar news catalyst may be seen in a different light as soon as tomorrow. If you need to be day trading these make sure you have allotted daily time to flip.
Although, we participated in the Solar ramp up a few years ago and initiated other groups very early like Shipping stocks (DRYS, TBSI) and ‘LED’ momo’s like CREE,VECO, we also never had these groups in the Shadowlist this past year while they fell steeply off a cliff and don’t think any loser group will be reinstated to Shadowlist in the near term. As said early January, last year’s trailers were being picked up and now this has spread to the real losers of 2011 as seen today.