One thing we all have to be clear about is that whatever the Euro rescue package does, it doesn't mean that things are all of a sudden hunky dory for the Euroland or world markets. The fact that they needed to prepare such a huge amount to cover the potential default of various countries is something that will be scrutinized to the hilts. We (markets) are in a wait and see mode.
Technically, this market needs some time to settle down from last week's shenanigans. Just today, after a bad open, we posted a chance for some buying to come in an it did with a 200DJIA/60 NASD point reversal to highs of day. Unfortunately, a late sell off finished the market basically flat. We actually made it as high as SPX 1170, but lets be honest here, it’s mostly very short term traders participating. If this was the conviction buying off lows we‘re looking for, we’d have closed nicely in the green. No specific reason/catalyst for sell off, which is possibly good news. As we’ve said the last 2 days, profit taking will ensue as there are people trapped from last week that would like to exit this market (1175-1180 is seemingly the possible high short term). We think this (profit taking) was the main culprit. Right now, this market may simply trick you into thinking that all is well and than boom!. The fact of the matter is, that we are still going through a May correction and there are a few weeks left in the month. We are sensing most of the longs are doing the waiting game like DJIM. Looking at the sectors out there, it was some of the consumer discretionary plays along with some retail/auto plays that led all sector gains by noon. (>8%), but sold off to flat. The worst were metals excl. gold of course, as China curbs/ hot eco.numbers overnight hit the coals, steels.
Now is definitely not the time to be emotional when it comes to trading decision. There was a lot of technical damage done to the market and we'll soon have an idea where it'll establish the support. Recent DJIM addition, VCI made a new high while MFB from last Q’s winners came out with a nice report and made a new high. For the next little while, we may just have to continue and avoid some of the heavily followed names, while trying to trade some of the lesser known names like VCI types that are good earnings and/or charts.
Bottom line, most are curious to see how much this market will give back of the 400 pt gain by the end of this week. More importantly, knowing what this market is going through gives us an advantage of what to possibly expect.
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