Bad News Good Action; Financials Still Leading

Wachovia takes a big knock on the chin, so does American Express, Apple gives light guidance--but you know what? The market rallied in the face of all the bad news with financials leading the way. The big drop in oil and tough talk from Plosser which propelled the dollar higher helped as well. WaMu reported worse than expected earnings and is down after hours, but I would not bet against that sector or the market at this point. If you are, you are betting against the current trend which is a dangerous thing to do.

- DV bounced off the 200 sma. It's looking very solid at this point. Stop out below 200 sma, take gains on upward moves.

FIG Rallies and Broad Market Update

As I mentioned in the previous post, FIG was on fire Friday and it felt like it was still going to go higher. Sure enough, the stock moved up in a straight line all the way up to 11 before correcting back down and spiking at the end. Surely, a rally to 11 (and the second straight 7% + day) was enough to alert holders that gains needed to be taken.

We have Apple, American Express, and more down after hours on either disappointing earnings or guidance. This news should weight on stocks tomorrow especially the financials and tech (which I'm still bearish on-just tech don't want to touch financials for more than a trade). Google came down further today (now around 460), I'd look to take some profits into the negativity tomorrow--it's just down so much now and it's also getting ready to fill the gap. Pharma got hit today off of Merck and Shearing-Plough. The minute I saw that they had delayed reporting earnings and their stock was down pre-market, I thought things were going to get ugly. That was a sure sign to cut losses or take profits and run. Then they rallied later on! What a short opportunity! Now, Merck is up after hours while SGP continues to get hit. I'd stere clear of the sector in favor of biotech.

Links
- Roche and DNA via thestreet.com
- Who is next?: The report Dick Bove's getting sued over

Another Trading Week

Financials seem to have turned as Wells Fargo, Citi and JP Morgan reported "less bad" numbers while Merrill still delivered a worse than expected quarter. The sector is really carrying/pushing the broad market higher as excessive risk aversion reverses course. There seems to be a huge push into these names and out of energy and to an extent the staples (KO, PEP, DPS). This rotation is accentuated by short covering (we know there was a ton of shorts in financials). I was impressed by Fortress (FIG) today. It rallied from morning until afternoon with all pullbacks being bought. There was an especially appetizing opportunity later in the afternoon as it pulled back from 10.44 to 10ish and rounded out to rally into the close to 10.31. It truly had a hard time coming down and I would definitely keep my eye on it in the near term.

Tech looks like a complete wreck. GOOG as well as EBAY, VCLK, and MSFT have all disappointed recently. GOOG came in and opened around 497 providing what I thought to be a nice short opportunity into the tech bellweather. Expectations were too high for the stock and an air of vulnerability to economic weakness has seemed to seep into the internet story. That combined with a large gap below the current price helps form a nice bearish background for further GOOG downside from here. The trade has worked so far as the stock dropped as low as 479 on the day. I am negative on tech (with a neutral to slightly bullish view of Apple) and would use it as a short hedge for a portfolio or would look for more opportunistic directional bets in this sector as well. The tech safe-haven play seems to be unwinding.

Healthcare seems pretty solid. Merck reports earnings before the bell on Monday which could lead to big shakeup in the sector. I'm looking for a beat (but not betting on it) as a lot of bad info has been priced into these stocks and sentiment has seemed to turn making these pharma/medical device stocks the new loved stocks in the market (MRK's recovered from downgrades and PPH was up during the last market beatdown).

A Few Other Notes:
- DV has a tradeable chart. DV can be bought off the 200 sma. The stock showed pretty good strength on Friday, so I think it will hold up.
- KO, PEP, DPS have been and look like they will continue to be hated stocks that are vulnerable to further declines. Strength is non-existent especially for KO.

BRCM Rips Cover Off the Ball

BRCM as I mentioned in my last post has been exhibiting solid relative strength. It's just been getting persistently bought on all dips. Well today it is having its solid breakout day. It's up strongly now and may continue to rise. I would start taking some profits as its moved nicely, but keep in mind that the trend is up and dips are still likely to be bought.

STJ is also breaking higher. This thing has come from down below today to up nicely in the afternoon. It's really killing it here, but it reports earnings tomorrow morning so be ready to take it off if you don't believe in the fundamental story.

Looking Back, Looking Ahead

The broad market continues its downtrend. The VIX has yet to spike, financial turmoil continues, crude pushes higher, rallies are sold and lukewarm days tend to drift to the downside. Also, I think the argument that the S&P-- now just barely into bear market territory (20% decline from peak)-- might have more to go based on past bear markets performance has some credibility. The current housing decline is worse than the great depression and it has spread rapidly across the entire banking system making this seem like at least an average bear.

Also, bottom pickers are feeling the pain as Freddie, Fannie, and the rest of the banks get hammered. Financials are dangerous here and should only be short term trades. Anyone taking big positions in these names are essentially putting a loaded gun to their head. However, their movements as well as crudes can continue to be used as a market tell.

I've been impressed by the action in BRCM, LO (announced $400 million buyback Wed night), PLCE and gold. I'm thinking about taking a shot at ESLR as well for a quick spike. I also think its interesting to see ARRS bounce after gapping down significantly. I'm watching for that sucker to get to its 200 sma after filling the gap and then shorting it down (of course depending on the action).

RIMM has been a bit of a disappointment as it fell through its 200 sma and has had terrible relative strength. AAPL is much better at this point and looks like its worth a trade if it pulls back to the 200 sma again. Ipods, Itunes, and Iphone are essentials to a large part of the population now, as much as bread and water are (maybe not that much). Furthermore, macs are becoming the preferred computer of choice for kids going off to college and a major migration of frustrated PC users to the much more flexible OS X system continues to occur.

Wednesday's a day that could really move the market. Bernakes gonna be talking for a long time which could spell disaster. The Fed minutes from the June meeting are also going to be coming out.

Sell BUD

BUD's risen up enough to take some profit off. Although the deal is likely to go through, a 8% + gain in this market is nothing to sneer at.

Good USO Short; DAKT

Oil came blazing off the open and popped strongly after inventory data came out. However, was a good place to go short. It proved itself unable to move back up and get over that level. Oil is still setup to for a long trade in the intermediate term. I highly doubt this is the top in commodities and it is likely that the daily news blurb about World War III (Iran v. Israel) will pop up soon enough.

DAKT is set up to short. It's finding weakness at its 200 sma now as it has before. It is likely to fall back as the 50 sma comes in beneath and catches it below.