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Entries in BKX-Financials (7)


Ahead of the open, (04-01)

As in recent years, Global markets flew out of the gate upon re-opening in the New Year.  In fact, U.S markets only followed what was a concerted effort by Global markets already underway for 1 or 2 session depending on the region.(Germany up 5% now, Brazil, India >3-4%.  Note, China overnight has started where it left off in ’11 as speculated rate cut didn’t happen.

On many days, market players evaluate newsflows and come up with excuses to understand a big move upwards or downwards.  This worldwide melt up has only one main catalyst and that is the better than expected PMI data as laid out here before open. Overall, the markets were impressed and also just happy that ‘Europe’ was quiet on the sovereign issues allowing it to break through the high SP1260’s cluster of resistance.  There is not much out of this region (like ‘weak’ peripheral countries auctions) this week allowing things to be quiet (unless S&P breaks silence) and attention swayed elsewhere.  This week will continue to be dominated by economic data and may bring late October highs ~1285 into play.

Although, US markets finished off highs, the gains were solid and nothing negative can be taken away. Even a positive FOMC minutes hinting at further actions (QE3), if a communications shift (transparency on interest rate policy)) was coming wasn’t enough for closing highs today, but that may change after further evaluation by the market in the upcoming days. 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 (materials/commodities Oil/financials.

The largest trailers of ’11 (SP 500 stocks) were the ones getting the best bid.    The question is how much of this high beta action was fast traders vs. real longs stepping up to the plate? Sometimes buying the weakest trailers like March ’09 is a sign of a long bullish cycle, but it’s a different theme now into ’12. Simply, it may last a little longer, but eventually real longs only will have to come in and spread the wealth for this to be viable for an extended time.  Consumer discretionary/retail late weakness is a little ominous (maybe only due to hesitation before Thursday’ same store #’s’).  Anyways something you’d like to reverse in one of the strongest groups last year.

In all, quite a bullish day for the short term.


Ahead of the open, (05-01)

The Eurozone fear mongers were out in full force citing everything and anything to get the upper hand today.  To name a few of many Euro’ concerns: fear over Hungary (debt default?), Spain seeking IMF loans speculation, Greece warning of default if no deal in March, ECB overnight deposits to new highs.  As hard as they tried (to SP1267), it wasn’t enough to knock a market fueled by eco’ data for too long!  Market is about the QE (LTRO etc.) going on in Europe, not these daily ‘peripheral’ stories.  

We need to remain cognizant of the Eurozone headlines, but it shouldn’t be the deal breaker in making a trading decision, right now.

Right now, the market is forward looking/positively to NFP# on Friday as demonstrated by closing flat on the day. A ‘2’ handle (+200k)?. 

Financials & Materials/commodities held up well, adding to the positive bias- sentiment here.


Ahead of the open, (06-01)

As market participants slowly return, they are greeted by ‘rinse and repeat’ action.  Once again, morning losses to SP1266 off fresh Eurozone fears turned into new 2 day highs by mid –day(SP 1282).  As discussed yesterday, Eurozone negative headlines should not sway one’s U.S equity trading decisions at this juncture or that the previously risk- on indicator/Euro currency is sinking.  Also, premise here to start the week of an upward bias due to economic data since global PMI’s t continued with the usually unreliable ADP# that came in at 325K. Overstating the potential NFP#  by ADP or not, it’s in the consensus direction and consistent with recent U.S data, which is most important. If ADP# was say 100k, all the previous related employment data would be questioned today.

In all, the EU hangover into the New Year is not going away.  This week has been quiet on the EU front as speculated despite all the fear mongering, thus adding to the bullish sentiment.  Next week, things really pick up with leader summits, ECB meeting, possible S&P action and investors may position themselves late in the day (selling) for such, especially if the NFP gives the market another boost in the morning.

To be honest, the fact China (Shang) is suffering again despite PMI’s coming over the ‘50’ mark is a bigger concern than Europe. 

Today’s, sour Euro’ soup, primarily consisted of capital raising worries by Euro’ banks in this type of market place, not the actual countries they make their home in for a change.  This is not an indication of broad trouble coming. It is likely a fear stemming from Italy’s UniCredit’s stock issue deal (~40% discount) this week, a shareholder problem (market cap dilution) with individual banks is a way to sum it up.  While the EU Bank indexes sink across the pond this week, the US financials/banks lead the morning equity bounces.  It is the 3rd consecutive day of financials making the Daily Journal (some sort of record), which began as a note of buying in 2011 largest trailers ie. BAC, C.  Now, that this financial rally (best sector in ’12 so far, BKX up > 5%) is being picked up by the talking heads mid-day, it is probably time to sell soon.  As in past Q’s, this sector moves into earnings which could be happening again.  To avoid another head fake by this sector, sell initial rally and buy the dip is likely the best strategy here.

 “….Consumer discretionary/retail late weakness is a little ominous (maybe only due to hesitation before Thursday’ same store #’s’. Jan.3.   . Update: The numbers were very mixed, if not soft overall as some well- known, strong names pulled a shade of SHLD.  Only name reporting today falling under our Shadowlist coverage was ULTA, which was quite positive and moved nicely higher.


Ahead of the open, (10-01)

Steady the market goes flirting with a breakout of October highs is the best way to describe the slow and tight range trading action today. This is nice consolidation action since most of ’12 gains came on the first day of trading.  The same trends continue..” Traders (mostly) putting money on economic/cyclical related sectors”…The BKX (financials) tacked on more gains as it outperformed again (~+7% YTD).  A switch into higher beta sectors is still evident, today we saw it in tech as well with semi’s up ~2% vs.the safety of software linked stocks.  

The most important aspect today was China (Shang ‘index) getting on track off bank lending #’s  jumping 2.9%. Shanghai index was a wary noted yesterday. If this is the beginning of a reversal in the China market, it’s a very good sign for U.S markets to go higher as risky assets would rise out of better China sentiment.

In all, the positive momentum continues and can only get a boost from Asia. Europe looms in the closet, but remains quiet allowing traders to have an upward bias as well.


Ahead of the open,(12-01)

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.


Into the trading week, (Jan 17-  )

Friday’s -6pt decline in the SP to 1289 was the biggest pullback since Dec.2011.  This pretty well sums up the resiliency of the market so far this year as another morning pullback gets bought.(at previous weeks breakout/close levels).  The inevitable and inline S&P downgrades/ paused Greek debt talks and muted market reaction since has just added to the idea entering last week’s trade of Sovereign fears abating.  

All in, with sov' fears abating, an easy ECB, China #'s/mkt reversing and the trade thesis remains the same with US eco’ growth  being a driving force in a cyclical economically sensitive trade, led by fin’s/housing.  The pullback in financials post JPM earnings doesn’t take this off the table. 

Importantly, earnings from tech/ financials will take over the headlines for the coming week.  Industrial earnings will test the recent US eco’ data.  The housing data will test the housing rally.

Nothing has changed to the upward bias, no reason to complicate things.


Ahead of the open, (20-03)

Despite, SP hitting a fresh high of 1414, the trading day was quite uninspiring in full as some profit taking ensued by close.  In all, it’s good investors didn’t start with some profit by the open following Barron’s positive housing cover story and the ‘Economist’ running another possible contrarian front page story on the economy. (Weekend was void of anything material to give market any direction.)  If anything a FT article on earnings season should have provoked some selling as it talked of SP forecasts earnings to fall .5% Q1Y/Y.  Yes, a decline for first time since late ’09 with margins falling for the first time in 2 years.  Considering, the market is going to be driven by the economy, this is something for shorts to chew on it and spit at the Bulls as nothing is assured as far as growth is concerned.

We just came off a big week of gains in BKX (financials), builders, industrials, steels all up 4%-8%, so it’s really not surprising the market started to take some profits with the financials leading the way, which have had hit the 30% gains mark.  At this point, the late profit taking may continue, but it’s for the right reasons as it will give those underperforming a chance to get in before Q end/month end.  A revolving door you can say with some exiting and some entering.