Upward Bias; Suprising Resiliance

The tone in the market seems to have shifted in the short term. The market is rallying after breaking its lows and looks to be headed higher from here. I'd look to be buying morning dips in the broad market and take advantage of any 3 down days on stocks like GIS, GHL, and LO. Eventually, we'll likely be lower than we are currently, but the rally seems to have some steam.

Doug Kass Blip

Check out the newest Doug Kass article on www.thestreet.com here.

Here's the most important excerpt in my opinion:

"Consider the following four data points:

1. Six trillion dollars of wealth has been lost in home prices over the last year and a half.
2. Eighteen trillion dollars of wealth has been lost in global equities in only seven weeks.
3. Deleveraging continues to restrict accessibility to credit.
4. Job losses are accelerating.

The Great Recession is now upon us and will be with us for some time to come.

Stocks don't lie; people do.

Throw away your S&P 500 corporate profit estimates for 2009 through 2011, and disregard the economist you watched on CNBC yesterday morning and the other strategists who talk of mustard seeds and a consumer-led recovery next year -- it's pure pabulum.

Stocks will, at times, afford us trading opportunities, but, for the foreseeable future, we will get no satisfaction in investing opportunities.

Only the most facile traders should be on the playing field."

Risk Arb Strategy Outperforms

BUD turned out to be an amazing trade and the deal closed very smoothly. LDG and CVS seems to be a done deal too. Strategic buyers have swept in to buy companies on the cheap during recent market turmoil. However, investors have been skittish about risk arb and spreads have been larger than usual due to general risk aversion and also concerns over deal financing.

But according to this Motley Fool article, risk arb funds have been significantly outperforming this year. I'd look to buy FDRY and CYCL as a bet that these strategic, mid sized deals keep getting done.

ATVI/ERTS

ATVI continues to outperform ERTS. On the day, ATVI is up 1.66% while ERTS is down 2.44%. Since Recommendation the trade has performed well too. ATVI is down 9.7% while ERTS is down 29.4%. ATVI outperformed by 19.7%.

I would look to sell ATVI and cover ERTS here. ERTS is getting killed, but could be in a capitulatory stage. Since ATVI has held up pretty well lately, it could be vulnerable to a bear raid.

Tired Market

The market looks extremely tired and cannot bounce. That's what you call bad news, bad action which is a good tell that the market is heading lower. I've continually called for a break to new lows and it looks like that will happen. Shorting the SPY is a good idea in my view both intraday and for the intermediate term. Markets have been range-bound today and I'd look to short the extremes up (over 100 up on DJIA, up 10 on S&P) as a continuation of that. I don't think we have anything that will propel us higher here, just lower.

Spot On

We've broken to new lows. Not a big surprise from my viewpoint. The facts are just too overwhelming and the Treasury/Fed's resistance is too little. No one is going to step in and be a hero in this market. If you do, you're just asking for your head to get taken off as all the other bottom callers have in the recent past.

Dow Should Moderate

I think the DJIA will likely moderate at some point today from the 100+ gain this morning. I'd look for it to eventually pullback to at least give up about 50 points. The weak jobs report was just another report that was already largely discounted. However, it's enough to give traders pause about rallying straight out. Moderate gains just seem more appropriate than an outright bull rally.

I still think the market breaks to new lows sooner or later. Continued bad news will prick away at market conditions. The fed/treasury has run out of tools and lost credibility (as shown by decline after decline). Lastly, even though a lot has been priced in, it seems like analysts and investors are too optimistic about the time it'll take to recover and the magnitude of the recovery. I expect a longer recession based on declining demographic trends and poor credit conditions. At best we get sub-par returns from here--not exactly an environment to be all-in long in.

Middle of a Trading Range

The S&P is in the middle of a trading range from 850 to 1000 and right now there's more room to the downside than the upside. Accordingly, I'm looking at things a bit more negatively right now due to the run-up we've had and the lack of a catalyst to propell stocks higher. If you look back at days where we've rallied and then had a nice red bar turnaround at resistance points, the following days have not been pretty. Back in September this was the case, as it was twice in October. I'd look for this mornings shallow decline to deepen a bit as the day goes on.

Bad economic news continues to come out. Upscale/Mid-Tier Retailers such as Macy's and Target continue to get hit by consumers trading down to Wal-Mart/Cost-Co and pulling back altogether. But a lot of this has already been discounted (as shown by the gains in many retailers today) making the environment that much more difficult to work through. GDP was negative in Q3, but the market stayed decently strong in the face of that as well.

The global slowdown is in full-effect though and you have to think it'll be hard to continually shrug off these nagging problems. The BOE cut rates 1.5 percentage points this morning. The ECB and Fed are chopping away too. But as it's been shown over the past year, cutting rates does not necessarily lead to cheaper and more available credit. So in the end, you have a slightly more positive near term outlook just because of the indiscriminate negativity and the momentary warming of frigid credit conditions, but also a backdrop that's failing to improve and that is incredibly persistent.

I'm not sure who is brave enough to go out there and start buying. Hedge funds that have gotten burned this year and they are too busy selling to raise money for redemptions. There just doesn't seem like there is any room to rally as investors have adjusted their time horizons and economic data does not improve. One things is for sure: we're not going straight up. It'll take time to work through the problems. New lows are not out of the question, but we're likely in a range for a bit.

Feel Good Rally

The coming certainty of a new president in addition to a more liquid and available short term paper market has led the market higher. A Barack Obama win will probably boost the market a bit more here. Right now we've gapped up 2 bucks on the SPY. It should fade back towards the 50 minute moving average. The rally may continue from there or could slump. Obviously, I'm looking for it to move higher. However, now that we're moved up so much I'm concerned about the potential upside on more than an intraday basis. There is resistance above and the market may very well be tired. CEC is exhibiting poor relative strength and should be sold.

Expecting Resilience

I think the market could go decently positive today. It has opened weak and is fluttering around, but I think the fact that yesterday's rally was so powerful and the market held the 850 level will leave shorts a bit hesitant to jump back in right now and give longs a bit of confidence to step up and lead the market higher. Libor has trended down over the past 13 days and commercial paper issuance on Monday was 10 times larger than actual issuance during the prior week. This indicates that the credit market is thawing. I'm sure most will still remain skeptical, thus limiting the upside and keeping market action choppy. It only takes one adverse event to break the trend. One stock that could move higher here is CEC. It recently gapped down but looks set to fill at least some of the gap above. If the market rallies like I expect, it could have some decent upside here.

The Federal Reserve's decision at 2:15 should be a very big market event. The market will likely headfake and then swing big in one direction. The market's expecting 50 bps (taking the Fed Funds down to 1 %) and will not be too happy if the FOMC surprises with 25 bps. I doubt the Fed is in a mood to disappoint, so I think 50 bps is a given. Below is a quote from a recent post by John Jansen over at Across the Curve. He goes into a bit more detail about how the Feds actions will effect the yield curve and an opportunity for a steepening trade.

"If the FOMC adopts such a dovish stance as I suspect they will, I believe that augurs for a much steeper yield curve. The front end of the bond market will benefit from reduced funding levels while the weight of supply will depress longer maturities.

I also believe that reduced consumption in the US can perversely lead to higher rates in the belly of the bond curve. As consumption declines the trade deficit will improve and there will be less dollars sloshing around overseas for recycling back to the US market."

Activision - ATVI

While the rest of retail may be in a tailspin due to ever increasing economic pressures, I expect spending on video games especially on the well known franchises to hold up well over coming quarters. To play this, I think you should look at ATVI, the premier company in the video game space. ATVI is very growth oriented and own top brands such as Guitar Hero, Call of Duty, and World of Warcraft that are extremely popular and generate quite a bit of loyalty among gamers. Furthermore, the company appears well positioned for the holiday season with titles such as Call of Duty World at War, Guitar Hero World Tour, the official Quantum of Solace game, and a World of Warcraft expansion pack.

With all the market turmoil, shares have come off a bit, but I suspect that ATVI will outperform it's competitors, specifically ERTS, in the coming months. Why ERTS? ERTS is a more mature company with titles including Madden, Fifa, etc. Those names are a bit tired and lack significant growth potential. Furthermore, sports titles appeal to more casual gamers who are much more likely to forego buying a game due to economic pressures than Activision's typical customer who is likely to keep spending no matter what. For all of these reasons, I'd look to go long ATVI and short ERTS. Over the next several months I think the story will play out and ATVI will be the winner.

Buying the Dips

After consolidating the large gap up, the market has trended higher with very shallow pullbacks that have all been eagerly bought up. The move is pretty broad-based with the stocks that were hurt the most last week, rebounding the most today.

Right now, it's a day to day market. The S&P's up so much that it's hard to chase because the potential gains are limited and it's such a news driven market. Intraday volatility has created a decent trading environment though. Opportunities like today sprout up with decent profit potential.

Negativity has overcome the market and this bounce was due. How long it will hold on though is a different question. The fed better deliver on another 50 and more "creative" measures too or else the market may get thrown into a tailspin once again.

Cover Shorts

The market has broken its recent lows and is now down around 4+% on the day. Three down days in a row means the downside may be limited in the short term and I would look to cover into today's drop. FL has come down quite a bit in a very short period (2+ dollars since I recommended shorting). YHOO's down big ($2+ since rec.). Oil's dropped off as the global growth story has really come apart in the last week or two ($7 on USO since rec.). KBR's been more resilient but is still participating in the downward move (around breakeven).

By the way, interesting quote from Eric Bolling of thestreet.com confirming what I said in my last post, "Commodities are contracting, equities are falling and surefire "safe havens" aren't safe. Case in point -- gold has been on a losing streak in an environment that should be extremely friendly to the metal." This non-discriminatory dumping has killed investor confidence. Selling has led to more selling allowing days like today to occur. I'm sure an oversold rally will chop up every once in a while, but for now the trend in commodity and stock markets continues to be down.

Flight to Safety

Market participants have clearly embraced the flight to safety over the past few months. Treasury yields have been squashed to rates well below inflation while basically anything else has been crushed. Municipals are a good example. Typically, munis are beneficiaries of the flight to safety because of very low historical default rates. However, yields have come out as a result of the failing bond insurers and downright fear in the financial markets. The point is: it is clear investors are in protection of capital mode and are not concerned with taking undue risk. This does not bode well for a stock market recovery as investors shun risk and hide in the safest assets.

I continue to believe the market's risks are to the downside and the upside is very limited. Low credit availability, demographic shifts, a weak job market, and falling home and stock prices have set the stage for an extended decline. Sharp rallies will give way and lows are subject to be retested and broken.

The Bear is Here to Stay

The S&P's down another 4%. Plan or no plan, the market is taking the negative view. I continue to question the notion that the market has priced in all of the bad news. As I have stated in an earlier post, the market is only currently reflecting an "average" bear market. However, we seem like we're in anything but an average bear market with demographic forces and credit conditions creating significant headwinds for the economy. This is most certainly going to lead to lower levels on the broad indices in the coming weeks/months.

A few short ideas: YHOO's looking bad. After rejecting MSFT's offer, it has suffered tremendously and the stock has acted terribly. Advertising revenues will probably fall for them given the weak economic conditions. I'd short FL too. It looks like it's rallied too much given retail's condition. Oil's broken down too and is likely to head lower for a bit as worries shift from inflation to deflation.

Morning Action

The market rallied after gapping down. It then came back to retest its lows and has moved back up slightly since then. Just a second ago, a higher low was made and the market has pushed up further erasing about half of its losses. As far as single names, HPQ and PLCE are looking really impressive. They both are showing pretty good relative strength and look to be headed higher.

What a Mess

House Republicans are apparently the hold up on the mortgage plan. I never thought that Republicans would veer this far away from Bush. But, it has happened, and the debate goes on. Everything will remain a mess until that plan is passed. However, even after it is passed, I think the best the market can do is lead us into another bear market rally before we stagnate or tumble again.

The WSJ outlined a couple different scenarios for the economy in an article published this morning, none of which are good. One scenario is an extended recession resulting from the housing bust and credit crunch. The WSJ states, "International Monetary Fund economists studied 122 recessions around the world since 1960 and found that the ones associated with housing busts or credit crunches were deeper than others." The second scenario is a longer, Japanese style deflationary period. However, they consider this situation unlikely stating, "For deflation to become a real problem, it would have to infect more than just volatile food and energy prices. At the moment, that doesn't seem likely, because prices outside of these sectors have remained reassuringly stable in the past few years."

I think the bottom line is that the current market environment and economic conditions are not just going to vanish. As I said before, things are going to take a long time to sort out and it'll take a while for businesses, financials, and consumers to regain confidence.

Financials along with the broad market are already getting hammered pre-market. The gap down will likely be pretty ugly and the tone could persist throughout the day unless some positive news on the Treasury's plan comes out.

Unprecedented Volatility Rules Market

The market continues to swing wildly as uncertainty about the Treasury's recovery plan haunts participants. Economic conditions are not helping either. This morning durable goods orders fell more than expected and jobless claims rose more than expected. Offsetting this negativity was some positive feedback from Congress, the Exec. Branch, and Treasury stating they can resolve their differences and put together a plan to buy distressed mortgage assets at hold-to-maturity values. Their hope is that such a grand plan will put a floor in mortgage debt prices, lower mortgage rates spurring demand for housing, and restore some liquidity to bank's balance sheets. The question is will banks lend and will people gain enough confidence and have access to capital to buy houses.

On CNBC, several charts of the DJIA a year after market crashes (and the RTC) were posted. Most of the markets were flat, slightly up at best, and down further at worst. All periods exhibited very volatile moves, but were very range bound and weak. I think that it'll take time to work through this period and an imminent recovery is not at hand.

Job losses are still a big concern (unemployment rate is at 6.1% currently). Europe is weak and Japan has already had one quarter of contraction. Gasoline is still at $4 a gallon virtually everywhere. Finally, you have baby boomers moving past their peak spending years causing a significant decrease in consumer spending. If the Treasury and Congress can't get a plan together, the markets are in trouble.

Another Victim of the Credit Crisis

The owner of the Hard Rock Park in Myrtle Beach has filed for bankruptcy after the credit crisis made it impossible to raise the amount of money to support the park. You can read the rest of the article here.

Things Are Getting Worse

It's pretty clear that things are getting worse--not stabilizing and certainly not getting better. With AIG down to $2 a share, FNM at 43 cents, and Lehman at 14 cents, the financials look like a complete wreck with even Goldman and Morgan (the formerly immune banks) getting punished severely. The S&P has made new lows after rounding off a bear market rally that could never push past the 1310 level.

What's to provoke a turnaround? No one's buying houses and prices keep falling. The consumer is being sapped by gasoline prices, declining home values, and job losses. Oil has gone from being a catalyst to a minor distraction. It is clear the drop has been because of slowing demand, a sign of a weakening economy. More and more companies are going belly up and the Federal Reserve is doing all it can (besides lowering rates). Nationalization's are not stemming panic, but creating more panic.

I still think we have more to go. However, the magnitude of today's drop will likely lead to some buying tomorrow and possibly the next day as well. After the slight bounce, then it's time to reconsider the short side.

Broad Market Advance

The broad market has picked up steam since my last post. After consolidating early, a breakout at 11:45 am has really pushed the market higher. Now after advancing more than a dollar (129.30 all the way up to 130.20) the SPY is cooling off marginally. I'd expect the dip to be bought as it has been all day. Crude plunged after sliding early on. The USO reached all the way down to 92.20 before a quick double bottom and retracing a fraction of its losses. There is really no edge to trading that market more than intraday. With a long weekend coming up, a storm that could that go either way, and big gap risk on the open, I would not be holding overnight.

LO is having a terrific day. That stock has really been turbocharged after announcing a $400 million dollar buyback in July and increasing its dividend dramatically to a more competitive rate more recently. PM is coming down (now 4 days in a row). Another day or two down and it may be a nice buy. In its short life, it has been a very range bound, but volatile stock. Buying low after multiple down days and selling high is the name of the game in that stock.

Oil Quick to Drop

The action of the open was much different than past mornings. It was not slow to drift lower--it just came off pretty easily and was showing no resilience. Given this action, the large gap up, and the fact that it is now up four days in a row, I'd expect it to come off a bit and extend this slide.

Oil's drop is providing some fuel to the broad market's rally, but it's not moving too strongly upward. Retail is up off of a strong quarter from Tiffany's (now up 10% plus). Other retail reports from companies such as Men's Warehouse are being looked in a favorable light as well. That stock is up to over 21 bucks currently, a 6% gain. Those stocks seem strong, but we'll have to see if they can hold their gains.

Slow Market; MENT, JCG

Things are pretty slow off the open. MENT is slightly positive after ramping yesterday. It's probably done moving up for a while. JCG looks to be recovering after gapping down a few bucks. It's experienced a slow, painful slide since late May. It's not looking especially attractive on a long term chart, but may be ok to fill some of this morning's gap. Oil is fading slightly after being up strongly on the open. Sentiment in that market has turned slightly from where it used to be and things are looking relatively bullish. However, the commodity is now up three days in a row which means it may have limited upside from here.

The Inevitable Rollover

Financials look poised to take another step lower here. While the XLF is currently near support at 20.28, the action at that level is not lively at all and support is likely to give way. The mood is negative despite FNM and FRE moving higher. Even oil is down slightly. Overall, I'd look for down 50 max on Nazz, down 250 max on DJIA and probably flat lining into the close.

A Buy the Dips Morning

The S&P opened up strong and has started to trend upwards. Oil is weak as is gold. KBR is up barely, but doesn't seem like it will be able to hold its gains. I would look at shorting it around 24 or above to catch some quick drops. LO came down and quickly recovered which has been typical action for the last two months.

Overall, things are looking strong. Small caps are being looked at favorably, financials are picking up some steam and the dips in the SPY are being bought.

Oil Up; LO Finds Its Way

It turns out my new outlook on oil was correct. Oil gapped up strongly this morning taking KBR right along with it. Interestingly the action off the open occurred in a very similar fashion to yesterday. Off the open, oil made a relatively shallow pullback to its 50 minute moving average and then rallied. Again, it was a good spot for a trade that could've netted some quick gains.

The broad market is not down to much, but instead waffling back and forth similarly to yesterday. The XLF is getting hit even though FRE and FNM are up. Other stocks to note are LO (which has been a favorite of mine) and NVTL, which is positive today.

Daily Wrap

Both oil and the financials ended positive on the day. Financials performance was a bit weak in my estimate, but not too terrible. They're still right around a support level at 19.60/19.80, but I'm not putting too much weight behind that. I was more impressed by oil's rally after being down hard early. Even though it got burnt on oil inventories, it rounded out, and rallied straight out into the close. I don't want to be a victim of another oil fake out, but things are looking slightly better in that market--maybe its time for a nice snapback rally. KBR might be a good way to play it. It's been taken down with oil but looks like it has support at around 22 and could move up from here.

I'm also watching NVTL and MENT. Snapback plays have been incredibly persistent lately. ZMH, HOLX, BF/B, MRK are all examples. MENT has already started to move but may have more juice. NVTL might have a day or two more down, but could stabilize after.

USO Recovery

The market seems a bit range bound as the broad indices have oscillated around unchanged for the day. However, two sectors, oil and financials, have been particularly active. The long XLF/short USO was a good trade (USO down to 90.95 at 11:30 and XLF topped out around 20.28) but has since reversed course. They don't seem to want to shoot to hard to the upside or downside similar to the broad indices, but I'll continue to watch to see what happens as the day goes along.

Long XLF/Short USO

Oil gapped up on the morning and actually rallied decently before oil inventories. However, inventories changed the path of the commodity drastically as it has now come off sharply. I don't think financials have realized their full potential on the day and I think the drop in oil may be a bit more lasting (it should at least go negative on the day). Therefore, I would look to go long XLF/short USO. Oil is coming back up to its 20 period moving average at 93.88ish after plunging which should be a good place to take a position. XLF is barely over positive, it should have up to .75% pretty easy.

FIG, NFLX

NFLX looks like its setting up to move higher. FIG is a sell at the 50 sma.

Persistent Buying in Oil

Oil is rallying after an inventory report this morning. It was definately not like the typical pops you've seen lately in oil--the ones that pop and immediately reverse and head lower. This was much more persistent and has really changed the trend in oil for at least the short term. After consolidating for a bit oil slowly started turning upward leading to a solid buy point around 99.13. It has since raced much higher (now 101.16).

The XLF has really faded on the day. After double topping early on, it came down and filled its gap. It made a lower high at 21.16ish and has come up a bit higher now. The move has the potential to push it back to break even or more on the day.

Otherwise, FIG has continued to be a monster stock--you just can't hold it down no matter what the XLF does. It's still moving higher here up 4.5%. I'd be a buyer on a trading basis. NFLX has continued to be weak (good sell on the open as recommended). GOOG is weak as well. It was acting terrible a few hours ago and really struggling to stay positive when most others were clearly in the green.

Sell

I'm not liking how this market is acting right here. Financials pushed a bit but nothing's following. I'd start selling all the trades including BNI, ESLR, FIG and NFLX. It's better to take gains (especially after yesterday) than to let them run against you. The big gap up just increases the risk.

Market Set to Pop

It does not look like there will be a dip to negative territory today. The S&P is up strongly in the premarket after a strong ADP report. Some enthusiasm has probably carried over from yesterday's rally as well. ESLR is coming on especially hot right now in premarket. I think you can take some off as the stock moves up although I'm eventually looking for a pop to 10/10.50. I'd look to take BNI off into strength today as very solid gains have been made in that stock. I want to see how NFLX acts today before saying to sell out completely. The chart reminds me of how STJ looked before it really broke out, the stock has shown excellent relative strength over the past two days, and it moves very well in general.

Oil is up slightly but we'll probably see that fade a bit more today. It's been acting terribly lately as I've noted several times on here. A strong dollar, re-allocation of funds out of commodities and into stocks, and the deflation of the market's momentum have all helped bring down that market. It's going to be hard to get it started back up after this dislocation. So while the trend stays down and commodities continue to act this way, you won't see me getting long for more than a daytrade.

Consumer Confidence Boost Stocks

A stronger than consumer confidence number provided a significant boost to the market today. Financials led and the action looked pretty strong in all corners with the exception of oil and health care. Standouts in my book today were BNI which basically just went up in a 45 degree angle, FIG which was just getting bid up unrelentlessly, ESLR which had a solid trend and was a great trade on pullbacks to the trendline and NFLX which acted bullish yesterday as well. That stock just flew a la ZMH and STJ, two other stocks I've point out on here recently.

This rally could very well flip tomorrow but at this point I'm leaning to more upside. All else equal, I'd look for any shallow weakness we may have tomorrow to firm up leading prices even tomorrow. I'll re-evaluate on the open and post again.

FIG, BNI, NFLX

FIG, BNI, NFLX are all looking good and showing strength after the consumer confidence number turned things around. You should've already bought BNI on the mean reversion trade. FIG and NFLX are just busting out. Buy them on any dips as they are likely to trend higher.

Midday Update

The market has fallen off strongly with the financials leading the way. LO continues to hold strong but there is no upside to the trade right now. BNI has come back and looks decent based on a short term mean reversion trade and a relative strength basis. Otherwise, nothing seems to be able to push to new highs at the overall tone is negative. Oil's still weak, but I'm not touching it short or long yet.

Financials Fading

The XLF came up from around a percent down to slightly up before hitting a top around 21.10. They have since faded and put the market in a similar tone to Friday's. Everyone seems to be waiting as the market moves sideways and there is a lot of sectors moving in opposite directions. As far as single names--ESLR has held up pretty well after popping strong on the open, OSTK's looking weak and the selloff could pick up steam, MA's OK but it definately has a shot at fading later in the day, and LO did its standard drop and rally move.

Slow, Choppy Friday

The market was painfully slow today. I felt like it was just plain out flat lining after 12. There was a couple good entry points but mainly but everything felt pretty range bound in general as financials stayed weak causing the broad market to stagnate. LO worked out as it had some big sweeping rallies to past break even on the day before closing a bit lower. ESLR had a good entry point at 8.75 as it trended up on its 20 minute moving average. It eventually got up to 8.84 before stalling out and coming off hard. The XLF had a nice retest of 20.61 and bounced strongly off the level to get up to a close at 20.87.

I'm not sure you can read a ton into today's action. It never went anywhere. Highs were sold, lows were bought. That may have been caution before the weekend. It could be interpreted as broad market strength against financials that were down most of the day. It could be interpreted as a negative that the market didn't react more positively to the oil drop and strong durable goods number. I'm leaning to the latter but I'm going to wait until next week to see what happens before making any bets on it.

Oil and natural gas are still acting terrible. The trend is down until it proves otherwise.

BNI - 3 days down buy on the next day open could be a decent trade. It's now down 2 in a row.
CRM - At the 200 sma might be a good entry point
OSTK - Showed first signs of weakness after rallying hard off a capitulation low, keep an eye as a short
MA - It's holding up and reporting earnings this week. It could continue to show strength leading into earnings.
ESLR - It's still worth watching for good entries in anticipation of the big gap up.

Mixed Start

BNI was ripe to sell at the open. The stock has lagged behind its peer group and if earnings and a decent open in the broad market can't propel it higher, then I don't know what will. It has since come off strongly. GOOG is holding solid here and showing further relative strength. I'd buy it for a trade on the day. Two days relative strength makes me think twice about the two days of weakness it had after earnings. ZMH is stalling out as is OSIP and OSTK. Pharma (the PPH) was solid on the open and is holding steady but not moving too hard to the upside.

Financials are fluctuating back and forth from slightly up to about a percent down which is a negative in my opinion. That action seems to be holding the market back from really turning up the heat. If they turn strongly positive and can hold (which has not been the case as of yet) then I might say get long for a trade. There was a good entry in the financials around 21 to 21.40 after the XLF's downtrend broke. The market has since faded a bit.

I'm looking at ESLR. That stock gaps up on news and then not too long after gaps right back down. Well, now its a couple days after gapping down and it looks to be slowing its decline. I think it's a pretty good risk reward setup-10% or so upside and stop out not too below. I'd wait on good entries, it can be a good trading vehicle as well.

Lastly, LO is always a decent bet when it's down 2% on the day which it is now. The 2.5% down has been like a floor on most days and it always seems to come back to life later on. I'd watch it close and take a good look at entering into that on the long side.

End of the Day Slide

Stocks slid at the end of the day a move reminiscent of action before the recent rally. Financials got crushed and oil spiked as well. I was thinking mid-day that maybe this was going to be a shallow dip, but financials never really could get above resistance and they were completely sapped of strength. I'm still leaning towards a flat to down day tomorrow then we'll have to see if the drop gets bought. There's a lot of uncertainty out there and I don't think anyone's gonna rush all in tomorrow morning.

Disappointingly GOOG which was actually quite strong in the morning and presented a good long side trade for a percent or so just fell off a cliff in the last hour. It was ugly and I think it may be a good stock to track tomorrow as the weakness could persist. BNI was strong at the beginning too. It just wouldn't give up for a while there and it too presented a good trading opportunity for a percent or so. Finally though it gave up at the end. However, it did have pretty strong earnings after the bell. So, it should be up tomorrow. If it gaps up and you're holding it, I'd definitely look to sell some on the open.

A lot still boils down to what oil will do. I'm not sure there's too much of a catalyst out there that will get it going again. Iran seems mostly priced in, but demand destruction is getting in there too. Yesterday was a good day to be an aggressive short because the action was terrible. Today and likely in the near future-I think it'll be choppy and probably flat overall.

Mid-Day Update

The market is down with financials leading the way. I've been impressed by the strength of ZMH, OSIP, OSTK and DV today. DV, a stock I recommended very recently, just spiked big on the open (which was a selling opportunity) and has come off a bit. It's still holding up very well in the face of a down market. However, now that it is up 3 days in a row, I'd look to take gains and wait for a better opportunity to get in again. ZMH has just been bid up relentlessly after gapping down off of its earnings report. The action is so strong that you can't wait on a pullback almost; any downtick is a pullback! Similar action occurred when ZMH reported last. It got hit and rallied back sharply for 3 days after the initial drop before the move stalled out. Based on today's strong action, I could definitely see this move continuing. I'd buy here. If it does not maintain its strength, cut it. OSIP has been trending up pretty strongly today. I'd buy that one on intraday pullbacks as well. Longer term, it's in an uptrend, but may correct soon. OSTK's action is good and I like the daily chart for the most part. It took a big hit but is rallying back towards its 200 sma. I'd suspect that it would find that average before turning back down again.

FIG is showing some weakness. As I mentioned before FIG was the annointed stock over the past few days as financials rallied. Nothing could keep it down! The dips were shallow and all of them were bought up. But now that financials are dipping, all of those buyers have turned into sellers and it can't seem to rally at all. I'd bet that the action continues for more than just today. There has been a ton of buyers come in and a pullback like his will put a little scare into them, so much so that they probably won't dip into the market until at least 2 days down.

Oil (as judged by the USO) still feels weak to me. It's come down a lot, but it just doesn't seem to be responding as well as it was when it was higher. Overall, I think it's just better to keep trades intraday in commodities right now because they are so volatile and the gaps in the morning can take you apart.

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.

Selling SHY into 50 sma

Short rates have made a strong move downward and profits should be taken into the 50 sma.

Pressure on Financials

Financials took a massive beating today after Wachovia downgraded Goldman and Goldman put Merrill and Citi on its conviction sell list. The VIX spiked up a bit but is still well off the 35ish level that market the last market bottom. Oil rallied strongly late in the day along with natural gas. Like I said earlier, you have to be mighty brave (and a nut) to short oil here. Oils now higher than the current highs of the consolidation range. We'll have to see if those levels can be held tomorrow. Short term yields fell hard and the SHY continues to move higher as traders reduce bets that the fed will hike rates and investors flee to safer assets. It seems to becoming more clear that financials are still in trouble, the consumer is spent up and might be jobless soon, and housing prices continue to fall.

The DJIA is now below its "Bear Stearns" lows. After the BKX and HGX indices (Banking and Housing) failed to hold their Bear Stearns lows, I guess it was just a matter of time before this occurred. The S&P is around 8 points off the low currently and should find its way down there soon.

I think its foolish not to cover some shorts with a rout like today (see previous post), but things still look quite negative. As long as oil continues to move up and bad news clobbers the financials, you'll have a downward trend in the broad market.

Gains in HOLX and ESLR

21.77 seems like a decent place to take gains on the HOLX short. ESLR's taking a big hit as well and should be covered around here as well.

Gains in Nat Gas

Nat Gas (the UNG) has completely reversed course and is up strongly to as much as 61.50ish this morning. Taking some gains up here seems like a very prudent move given this strong reverse.

Wasn't Oil Supposed to Fall Off a Cliff?

You would think from all the talk on CNBC the other day after the Saudi's agreed to increase production and then yesterday as oil inventories grew that it was the end of crude as we knew it. Then today, what do you know, crude's back higher at the top of its range. It's acting very bullishly but something drastic is eventually going to have to push it through the top or bottom of the range. I'd definitely be leaning to a break on the upside, but until that comes you should look at it as a range (could be shorted somewhere above 112 with a tight stop above its range highs at 112.75 if you're brave).

On the other hand, as I stated yesterday, nat gas has been coming down for a few days and looks to be finding a near term low to rally off of.

Other notes:
DGLY - coming back to 8.50. Can go long off of/near that level and stop out below.
SHY - still moving up. It's becoming more apparent that the federal reserve does not want to take the chance and tank the economy. All those cuts the market was pricing in for this year? Good chance they are not going to happen.

UNG Pullback Could Offer Opportunity

Natural Gas has been on fire lately and a pullback could offer a great opportunity to get long. The commodity is clearly trending higher and as long as it stays above its 50 sma, the trend should continue. It is now down two days in a row. If tomorrow is down at all I'd look to start buying right around its trendline.

On Hold for the Fed; Good Oil Bottom

Oil continues to hold in its broad range and as I've said before I think it should be bought around 107, the level it held successfully this morning despite a higher levels of inventory than expected. However, it is still down on the day which has helped to fuel the ongoing rally.

The market has pulled back from its highs but seems to be stalled out a bit prior to the fed decision.

The Afternoon Slide; Fed Tomorrow

The market slid back this afternoon and could not hold its gains as oil turned positive and financials weakened into the close. Overall though, the S&P ended much better than what could've been.

Today's data was not very encouraging. Although the Case-Shiller fell less than expected and there were some month over month gains in the index, the 20 city index was still down 15.3% year over year, a significant decrease that shows home prices are still steam rolling to the downside. Furthermore the Conference Board's consumer confidence survey fell more than expected while inflation expectations remained stubbornly high. Obviously, things could be better.

The fed will announce their decision on rates tomorrow which will surely be a market moving event. I still side with those who think they will be on hold for the rest of the year as the economy remains fragile. One thing shaping my view on this issue is a paper written by Bernake in '97 which states his position on this issue pretty clearly. He and his co-authors found that "a substantial part of the recessionary impact of an oil shock results from the endogenous tightening of monetary policy rather than from the increase in oil prices per se."

Recovery

There's been a nice recovery this morning after the XLF failed to push lower on the day and oil has moderated to even. The XLF had been down as much as a percent and a half but suddenly shot to up a percent while the broad market was strongly negative. This did not make sense with the recent relationships between the XLF, USO, and SPY. Therefore it was a very good time to get long and ride the recovery.

The XLF is still climbing and should lead to more gains from here. A turn in the etf or a spike in oil would not bode well for any continuation.

More of the Same

Oil continues to show strength and remain in its 5% consolidation pattern. A Saudi increase in production failed to bring down crude prices as their actions were either a) already baked into the cake b) were not done with enough conviction to convince anyone c) a combination of the two. Furthermore, the XLF took a massive beating during the day. Banks, brokers, and regionals were all down strongly. It surprised me that the broad market was not down more off of this action. However, I had a good idea that it would not end positively (as it was at one point) leading to a good short was when the market started going positive in the afternoon.

The Big Picture Blog (Barry Ritholtz) posted a very good chart today. As you may know the VIX spiked at or near 30 on the last three bottoms, but has failed to do so yet. He states that he thinks we have more to go based on this, that the action hasn't become capitulatory yet. I agree with him and would stay balanced/less invested overall until it starts to really spike.

Links

Bill Gross says to buy BRIC equities on underestimated US inflation. Morningstar agrees.

American's cut back on driving.

China increases fuel and electricity prices.

The wild card for a housing recovery is recession.

Traction

Oil broke violently from a triangle after rallying off of yesterdays lows. This drop has energized the broad market and really got the financials going. Financials are leading the rally almost in a straight line.

USO/XLF

The USO is down big off of news that China will raise retail gas prices by 17%. Even though it is experiencing great downward pressure, the USO is still holding above its range low, has put in a lower high and is moving up from yesterdays lows. Financials are slightly weak again relative to the broad market. It'll be hard to sustain much (as has been the case today) with weak financials failing to participate.

Oil Sours the Market

Oil (as judged by the USO) continues to trade in a range from 107.50ish (which it bounced off this morning) to 112.50. It still seems to be a good bet to buy the low and sell high (range trade). Strength in oil has influenced stock prices heavily lately and that relationship does not seem to be letting up. The broad market still looks very tired and the trend is still down.

On the other hand, financials did not push lower after they gapped down and actually ended higher than their open. Morgan Stanley reported and ended up on the day. Goldman was up as well. I think it is a positive that they were not absolutely crushed.

Going forward, its important to observe these two elements of the markets as they basically encapsulate the themes participants are concerned with: inflation and the health of the financial system. I've also listed some other stocks/etfs I'd keep an eye on.

Watch List:
USO - oil continues to dictate market action with strength leading to weakness and vice versa
XLF - weak financials also for-tell broad market action. Concerns over the financial system colors market sentiment, weighs on indices, and influences fed policy (dollar, interest rates as well).
BUD - Buffet will likely be on board. Shareholders are tired of lackluster stock performance. A dip at this point looks like a gift.
SHY - fed talks tough but action is another thing. The bond market is pricing in 2.75% at the end of the year, but will have to adjust its expectations and short term rates once reality sinks in. See Robert Novak's article from the Washington Post and Catherine Baum's on Bloomberg
ESLR - waiting for a spike to 12 to short. It has not made it much above that level on several recent tries.
DGLY - great story stock, undiscovered by the street, support at 8.50
BIIB - Carl Icahn pushed to get this stock sold. It actually got an offer for around 82 bucks a share (its trading at 58.50). It has behaved well in this market and is nearing support at 55 where I have recommended it before.

Speaking of Carl Icahn, he is finally going to start blogging!!!! According to Reuters, Carl will become an active blogger on his site http://icahnreport.com tomorrow. I'm planning on becoming an avid reader.

Sell GOOG at 574.50

Sell Google up 31 bucks from the buy point. It's made a solid move and is now up 4 days in a row.

Buffet Gives Go Ahead on BUD Deal; Early Trading

The Belgian newspaper De Standaard, citing sources, reported that Buffett backs the $46 billion, $65-a-share offer that InBev has made for Anheuser-Busch according to www.marketwatch.com. If this is true, it would be a nice step towards getting the deal done. Berkshire Hathaway holds 5% of BUD and when Warren Buffet says/does something, people listen. BUD is currently at 61.30, 6% off the offer price. You can check the Market Watch article here.

Also, you may want to take a look at a new WSJ Deal Journal blogpost that gives BUD a D for its treatment of shareholders.

The market is lower this morning off of weak action in the financials. Oil (as judged by the USO) gapped down on the open, spiked, then successfully held its lows only to bounce strongly again. It's currently trading around 108.30ish near a support level at 108. Looking a bit more broadly, the USO seems to be in a range from 107-112.50.

HOLX

HOLX has rallied after a strong move downward in May. It is now nearing its 50 sma and weakly consolidating. I don't think this stock has any fuel left in the tank and leaving it very vulnerable here. The 50 sma should definitely act as resistance, but it may not even reach that level. I'd look to short around these levels in anticipation of a pullback down to 21/its recent lows.

Friday Trading; Links

After spiking in early trading the SPY and XLF sold off hard as the XLF failed to confirm a new high in the SPY. However, that drop reversed around 1:40 as the financials took a leadership role and led a rally into the close.

Oil, as judged by the USO, gapped down on the open, bounced briefly, then retested that level providing a good low risk point to get long. It then treaded up to sideways for the rest of the day.

A FEW LINKS:
Crossing Wall Street finds no edge in buying up days like today.

Is oil a bubble?

Vince Farrell keeps inflation in perspective.

GOOG

GOOG has come down to a support level and is currently trading right next to its 50 sma. I'd buy against that and stop out below.

Articles Worth Noting; Markets Moving

The markets are moving slightly higher now that oil has taken a hit and the VIX is coming down. The Nasdaq continues to show weakness as it did yesterday and there seems to be a lot of churning going on. Given that the sectors are not confirming each other (they're moving in different directions), I would not suspect any real rally. Rallies tend to lift all sectors.

Another Few Links:
Right now, it seems the fed is trying to tame inflation by speaking out. However will they actually raise rates later this year? John Jansen at Across the Curve doubts it.

Goldman and Lehman are not convinced either.

I would look at the SHY (the trade that John Jansen suggests). It has come off steadily since March but may now find support at 82.26 on its 200 sma

Gap Down But XLF Holds Strong

Rate hike fears drove the market to gap lower. However, financials are holding strong and negativity looks to be overdone. Yesterday's lows have held and the market looks to be good for a short bounce. For more than a short bounce, several things will have to align including lower oil and a sliding VIX, which are not happening right now.

Bernake talks tough on inflation.

Quantifiable Edges performs a study on when down volume swamps up volume but the S&P closes higher.

Across the Curve comments on Bernake's speech and assesses movements in the fixed income markets.

Buy ETFC on Spike Downward

ETFC is spiking downward and is currently down to 3.68. Volume is spiking as well and looks like this move is getting overdone. I'd look to buy here for a quick reversal.

Data Dooms Market; Hefty Drop in the Cards

"The U.S. lost jobs in May for a fifth month and the unemployment rate rose by the most in more than two decades, signaling that the world's largest economy is stalling." Access the story here.

The indices are pointing down and will likely have further to go after the open based on how big this story is and the spike in oil. Any JCG longs that were put on yesterday should be sold up or stopped out right below the entry point. With a drop today, a retest of the recent low has become likely.

DPS Jumps; Broad Market Strong

Dr.PepperSnapple has popped big today after they announced that earnings grew 37.7% from the same quarter last year. It has traded as high as 26.38 (5.52% higher than where I recommended it) and now has pulled back to 25.77 (3% higher than where I recommended it). While some gains should've been taken on the pop (it is likely to give back some of today's gains in the near term), I continue to think that company is undervalued compared to its competitors and should make further gains in the intermediate term.

The yen dropped today against the dollar and euro and looks like it may have broken a short term support level. Furthermore the 10 year treasury note yield has rallied back strongly to 4.04% and may soon touch its recent high of 4.13% if this stock rally can continue. These two factors signal that risk appetite is coming back into the market as investors look toward higher yielding assets and stocks instead of risk free bonds. However, what makes the market's move even more impressive is that it did it in the face of a strong move in oil. All of these of moves bode well for the continuation of an upward move in stocks.

Right now I could see the S&P making another attempt at the 200 sma which is around 21 points above current levels. To play this, you may look at JCG (currently at 36.34) which put in a short term double bottom on Wednesday and has the potential for a snapback rally after being sold off 13 bucks over a very short time period.

10 Year Rates Over 200 Sma

The yield on the 10 year has soared over the last few days as stocks have rallied and several fed officials have made very hawkish comments. Rates have now rallied from 3.45 to over 4.10 on the 10 year, a very significant move. Although they may continue to plough higher, I think it makes sense to take profits around this level.

Cover XLF

XLF is probably near a short term low as it approaches the 24.50 support level. Given that it has fallen from over 28 bucks to 24.64 in such a short period, I think it's a bit oversold and would look to cover any XLF short positions here.

DPS

Buy DPS (Dr. Pepper Snapple)

DPS's products are all staples with solid brand names that will continue to sell even in the face of a slowdown. Forced selling due to the stock's spin off from Cadburry has depressed the stock price in the near term leading to an opportunity to get long the stock. DPS sells at only a 13 PE while its peers (KO and PEP) sell at a 18 PE. This is a very wide disparity that should close soon enough. Although DPS does not have the international exposure of KO and PEP, the gap between valuations more than compensates for this.

I think that 25 dollars is a very reasonable price to get long the stock given the factors above.

XLF

Short XLF - The XLF was driven below its 50 sma, a level that has provided support over the past week or so, on news of Wachovia's reckless investments in a Citigroup hedge fund and estimate cuts for several investment banks. The XLF hasn't participated in the last part of the broad market rally and has looked relatively weak in past weeks. This action shows that banks (except USB, GS) still have no credibility and are in a good position to be sold off. Bad news was good news for a while, but sentiment has turned after a strong rally to the 200 sma has worn out and consolidation/pullback has become more likely. Given this shift, I don't think people will be willing to step into the weakest sector this early into a pullback giving the etf more downside from here.

Traderfeed and More

Dr. Steenbarger is waiting on several indicators to peak before calling an end to this rally. You can read his indicator review here.

Insider buying in Etrade indicates confidence in a turnaround from management. See here.

Quantifiable Edges has a hard time finding anything that would suggest we move higher near term.

Risk appetite grows as shown by Blackrock's purchase of subprime.

Also, another interesting blog I've found can be seen here.

Reality v. Gov't Data

I've posted three links that call into question the most recent CPI data. You can find them here, here, and here.

Start Selling ISRG

Sell ISRG against its 50 sma. ISRG got torched in April but found a low above its 200 sma. It has been treading higher since.

Solid News From Etrade

Check the link here.

Gap Up Catches Bears

Gap up may lead to further upside as bears get caught short.

The bulls seem to be in complete control here and the 200 sma looks like a logical target for the S&P (DJIA is already there) over the next week.

USB's Conservative Strategy Wins the War

Slow and steady is sexy in this market. While USB's limited exposure to subprime mortgages and structured finance products and 5% plus dividend would've made it a snoozer a few years back, it is certainly a solid candidate for investment now. Furthermore, a solid base has been put into this stock after Warren Buffet ventured into the name. That investment gave USB exactly what other financial stocks don't have: credibility.

The stock now seems to have put in a solid fundamental and technical base, opening the doors for an eventual rally after the choppiness subsides. As I've recommended before, look to buy this stock when it comes down to near, at or below its 200 sma. That level seems to be "golden", as it always pushes higher not too long afterwards.

ETFC's Back on its Feet

ETFC's current price of under $4 reflects an extreme level of distress that I think is unwarrented and should start to dissapate in the coming months. However, it does not seem that anyone else agrees with me! The stock currently has around a 20% short interest and tons of negative analyst coverage. I view this as a positive. It provides the fuel for a sharp turnaround in the stock price by making any less than terrible news seem positive.

While there are still challenges in front of the business, it seems that management has already done what is necessary to take bankruptcy off the table. This includes a 2.5 billion dollar cash infusion from Citadel Investments, raising cash through the sale of non-core assets, and reducing debt levels. Furthermore, they have also announced that they are exiting the retail mortgage origination business. The goal of these actions are clear: reduce risk and get back to basics. I believe that this strategy has already started to stabilize the business and will lead to further growth in the near future.

E-trade is not only taking steps to stabilize itself but also to grow as well. To jump start growth, E-trade's management has invested in advertising including a Superbowl commericial that received tremendous response. Although management has indicated that advertising was front loaded to the beginning of the year, these popular commercials continue to run and could continue to draw in new customers. Furthermore, while bankruptcy threats errode, old customers may come back on board in order to take advantage of E-trade's more advanced platform. It is clear, as even the CEO of Ameritrade recognized, that any customer's looking to leave E-trade have already done so, leaving ETFC looking at growth, not further customer losses.

E-trade is a strong brand that got mixed up in a nasty business. Although damage has been done, I'm confident management is on the right track and will lead the business to start regaining its once prominent role as a leader in the online brokerage community. The upside is wide open here while the downside looks to be fairly limited (It's hard to imagine further negativity). Thus, I think the stock is a buy at current levels.

Trend Upwards; Short Opportunity

A few thoughts...

-The fed cut didn't seem to matter very much to stocks. The spike after the announcement was an excellent time to get short for a trade. That action was clearly not sustainable. The market was already up so much before the decision and the news was not exactly earth shattering. In fact, it was pretty much exactly what the market expected. Hence, there was no reason for the extra spike higher, creating a terrific shorting opportunity.

-Financials made a lower high last week that I was surprised that no one really pointed out. It was an excellent buying point. They have since led all other sectors (with the exception of tech) during this rally.

Higher Low in XLF Leads Market Higher

XLF is forming what looks to be a lower high this morning. GS has broken out from a range and is pushing higher. The commercial banks are higher as well. This is good news for the broad market. If the financials are being looked at positively, I think the other sectors will follow them higher.

Has ISRG Found its Low?

ISRG was sold off after reporting disappointing guidance the other night. Its decline was halted at its 200 sma. This is a good, low risk time to pick up some shares in anticipation of some sort of bounce back.

URBN

URBN bounced off its 50 smas and has moved slightly higher. URBN should be sold at 33 bucks for a quick 2 dollar gain.

URBN

URBN has been bouncing off its 50 sma and moving consistently higher. I would look to buy any pullback to that average and stop out a percent below.

Consolidation/Pullback

The daily S&P chart shows that we're now up 4 days in a row. Due to the rarity of this type action, I would expect that the market is a bit overextended in the short term and am expecting some downside or at least consolidation to start out the week. Furthermore, we are right near resistance on the S&P at 139.61, a level the market did not breach on Friday.

A slight pullback with nothing too bad coming out as far as data could set us up to break higher later this week or next week.

Ready to Move Higher

The broad market seems like it's ready to move higher. Every time a bank announces (with the exception of WB), we're getting a pop in the financials and the broad market. I've pointed out several other bullish factors in other posts on here as well. However, we are now up 4 days in a row. It doesn't seem like the ideal setup to jump in.

Today's gap up was a signal to buy for an intraday trade. Quantifiable edges showed a few weeks ago that it has been a profitable strategy to buy gaps up in downtrending markets. They tend to trap bears and leave them scurrying to cover which pushes the market higher throughout the day.

Boone Pickens and Intraday Action

Boone Pickens is bullish on oil up to 125. Also, check the WSJ front page article about slowing production in Russia. You can find that article here.

The was a nice entry today. Around 12 and 12:35 the SPY made new lows but the XLF did not confirm. The SPY then went on to confirm the divergence and form a double bottom which led to a full dollar rally into the close.

Citigroup will announce in the pre-market. That will certainly have a big effect on the market and is something that needs to be watched closely. Citi's at the heart of the financial worries that cloud the market right now. Their earnings could really help us in establishing a clear direction from here.

Treasury Yields Take Off

Treasury yields have taken off in a big way. Check the 10-year treasury chart above. This action resembles when oil bottomed back in early February. Since then oil has soared. Treasury yields could follow the same path. Time to short some bonds.

The 14th marked a higher low for treasury yields and a change in trend. This recent move has also marked a higher low of the performance of the S&P versus the TLT (long dated bonds). This could signal that money is coming out of the safety of bonds and back into equities. People are becoming less risk averse which is bullish for stocks and bearish for bonds.

Couple that with the fact that there is a growing resistance to fed cuts because of rising inflationary pressures and you have a nice set up for lower treasury prices (higher yields) and higher stock prices.

Another chart that has caught my eye is the $BKX or the Banking Index. The chart below shows that the index successfully retested its lows and is now recovering a bit. It's a very positive sign that the banks are holding up even with all of the negative news coming out (Merrill writedowns, JPM raising capital, WB getting killed). Any breakdown to new lows would be concerning.

Waiting for a Real Signal

Brett Steenbarger points to a divergence in the S&P and New Highs/Lows. I think Dr. Steenbarger's post supports my intermediate term bullish outlook.

It seems like the bears are running out of ammo for the time being. If they couldn't kill the market on GE, what is going to discourage buyers from coming back in? Up until Bear Stearns, it was all too easy for bears to scare the hell out of people. We went down on anything and everything. It's just not that way anymore. That leads me to believe that there has been a bit of a regime change here.

However, I still wouldn't make any significant bets until some clarity arises from the current situation. Although, the bulls are pushing the market higher right now, resistance that has stopped 3 advances flat in their tracks is still not too far overhead. Once that gives way and is confirmed by rising new highs and broad participation (including the financials), then you can count me more bullish. Until then though, I'm skeptical and keeping a short term focus.

Links

Bespoke Investment Group takes a look at the dollar and interest rates.

Blackrock's Chief Investment Officer likes US equities.

An indicator for identifying range-bound and trending days.

Links

Investing and trading are both about waiting:

Jesse Livermore via Doug Kass on thestreet.com

Brett Steenbarger on the time between trades.

Trader's Narrative on why trading is so difficult.

GE Startles the Market; 50 sma

It's not a good sign when one of the world's leading companies misses earnings like GE did this morning. First of all, the stock carries a ton of weight in the S&P which leads to a nasty breakdown in the broad market. Also, GE is seen as a sort of bellweather for the economy since it is such a diversified and large company.

GE's really getting punished right now and the major averages are already down over a percentage point. This is not the sort of catalyst that will help us break out from this range! Now instead, the S&P and Nazz are hovering above their 50 smas threatening to break down. At this point, the market's pretty dangerous. Thus, it's not a good idea to be caught too long.

USB, USO

USB should be bought anytime it comes down to 30. Buffet buyers continually buy at that level pushing it back up to 33ish each time. The same type action occurred in BNI before it broke out.

USO is in consolidation. It could break out from here or could continue in its current range. If it gets down to 80 bucks I'd buy it and stop out beneath the 50 sma. If it breaks higher, buy and stop below the breakout.

Another Positive Sign

Taken from Rev Shark (See Links on the Right):

"Meanwhile, the most notable aspect to the trading session was the continued action in many smaller stocks. We mentioned yesterday that there were a few pockets of activity, which suggests an increased level of confidence and a willingness to take on additional risk. It’s been quite some time that we’ve seen this many individual stocks break out, and we’re sure that many active market participants are pleased to see some speculative action."

Important Link

Quant Edges outlines a possible change in the market's character.

Turning Bullish (Intermediate Term)

Everything depends on the direction of the breakout/breakdown of this consolidation range, but I'm leaning toward an eventual bullish resolution based on the following three ideas:

1) The JPM/Fed bailout of Bear has put a floor beneath financials
2) Support has proved to be solid at 1275 on the S&P
3) Bad News Good Action (Negativity is Overdone in the Near Term)

I'm a bit hesitant about hopping in head first to the S&P. Two days up in a row means that the upside is limited. Keep in mind resistance is still right above here at 1385-90ish. The action at that level will be very telling.

Markets Fading

There is a serious lack of buying interest in the markets. A real rally just hasn't materialized even after a nice bounce off support. There are several things to blame for this. Financial woes have popped back up again. Oracle's miss has people questioning whether troubles have spread to other companies outside the financial realm. The democrats are talking regulation and taxes.

Today's action was poor. Stocks trickled down all day with no capitulation or panic. Financials were weak and a rally never had a chance. Right now the markets are in no man's land. I wouldn't think of buying until reaching support or some sort of panic (gap down/spike in the VIX) ensued.

Weakened Buying Sentiment in XLF

XLF was very weak throughout the day relative to the market. Small caps also performed pretty badly suggesting that participants are still unwilling to come into the market at this stage and do some real buying. Without movement in these two sects, it'll be difficult if not impossible to sustain a rally.

Right now, we're signficantly off the lows and seem to be range bound. I don't see a huge break up or break down in the near future unless we get another Bear (which is unlikely). Accordingly, this doesn't seem like a great place to pour into the long side (nor the short).

Mood: Near Term Bearish but Patient

Nice Rally; Resistance Still Above

Turns out I was REALLY right. The XLF closed up nearly 7.5% on the day and the S&P up about 2%. I'm still concerned about the 50 day simple moving average not too far above this level. Keep a close eye on that and continue to monitor the financials.

Here's some links (All Three Are Bullish):

http://www.thestreet.com/story/10408703/1/towering-vix-signals-a-rally.html

http://quantifiableedges.blogspot.com/2008/03/big-drop-after-big-up-day-rarity-that.html

http://www.thestreet.com/story/10408225/1/kass-11-good-omens.html

Strong XLF Leads SPY Higher

As we got near 9:45 the SPY was pushing to its lows while the XLF stayed stubbornly near its highs. As selling in the SPY started letting up, the XLF continued moving forward providing a nice point to get long the SPY. Like I've said before, the financials control the market and spotting divergences between their performance and SPY performance is a good indicator of shorter term and longer term market direction. Sure enough as I began looking at this action, the SPY started firming up and has since rallied over a dollar.

50 sma is Still Resistance

Update on Picks: JP Morgan closed at its lows even though at one point it was up over 2 bucks (like 5%) where it should've been sold. Google also closed at its low after being up almost to 450 dollars.

It's clear the 50 sma is still providing significant resistance for the broad market. If the markets move up, watch the 50 sma level closely. If it gets weak, short. If not, then stay away.

Bullish Market Turn

Todays action was clearly bullish. This morning the market opened with a respectable gain until financials such as Lehman and Goldman really started taking off. As these rose, the broad market followed strongly. Any dips were bought into and the market closed near the highs of the day.

There was a great opportunity to get long today besides the morning. Right after the fed announcement there was a nice little headfake selloff that provided a good bottom to trade off of. The market then rallied strongly from there into the close.

I think the market still has upside from here. The investment banks are becoming much less of a worry as the junk (Bear) is finally getting thrown out and the prime players (Goldman, Lehman) can now distinguish themselves.

Google looks like it has the potential for a bit of a snap back rally. The chart shows a quick double bottom that looks tradeable. JP Morgan might still have some juice here as well. It's one of the healthiest banks out there and showed it by picking up Bear Stearns on the cheap. Denis Gartman also publicized just the other day that his fund started buying it. Plus, it didn't move near as much as the other banks today.

Bad News, Good Action

A combination of solid action and good news makes this market look a lot better. Even though Bear is gone, Lehman and Goldman are still chugging along, restoring some confidence in the troubled investment banks. Both reported earnings that beat estimates this morning and are up big in the pre-market as a result.

This in combination with the solid action yesterday (big gap lower was completely erased into the afternoon) has me thinking we could get a few days if not more to the upside.

Look at yesterday's spike in the VIX. It was exactly the type of move that I was looking for to get long off of. Everyone got too negative which let off a nice buy signal. Gaps lower in a downtrend continue to be a good opportunity to buy.

The XLF looks set to lead this morning. Their success, as I've pointed out in the past, is essential to the health of the overall market. The issues that surround the financials control the fed, sentiment, and thus market action. Keep an eye on their movements as they may lead the market up or down.

JPM Buys Bear for Two Bucks a Share

JP Morgan announced Sunday that it will be acquiring Bear Stearns for just two dollars a share. This will likely spur a downfall in the market on Monday as the economic situation continues to be proven worse than initially and commonly thought. However, the Fed meeting on Tuesday could caution shorts from being too aggressive.

We're now down three weeks in a row on the S&P and Nasdaq. If we get beaten down this week as well, I might consider buying the Nasdaq for a mean reversion trade. Typically, the broad indices bottom out (short term) after 4 weeks down in a row. This is a result of overdone negativity where sellers get worn out and overextended.

This market's theme continues to be sell strength and buy extreme negativity. This will continue to be the case until there is either signficant fundamental change or financials regain their leadership position.

Gap Lower; Reaction to the Upside

After gapping down signficantly on the open, the S&P is now breaking higher. It is coming right over its 50 and 20 sma (1 minute chart) strongly and looks set to move higher from here. We'll have to see if this can hold into the afternoon.

Here's a link to a great article that was recently posted on Quant Edges which states that buying gaps down (like this morning) in bear markets is a profitable strategy.
http://quantifiableedges.blogspot.com/2008/01/large-gaps-lower-in-uptrends-vs.html

Slow-Mo Move Downward

This morning I mentioned that the market didn't look too bad. Well that was true for about 45 minutes. The S&P rallied a dollar from where I posted but has since faded.

The S&P continues to drip down slowly. For anything to change there needs to be some panic or signficant fundamental change. The VIX hasn't moved up enough to indicate panic. I think that means there is more to go on the downside before any rally.

Watch the January lows. There needs to be a signficant reversal off those levels for the market to see any real upside in the coming days/weeks.

Rally After Gap Down

After a gap lower, things are really starting to heal up. The Nazz is leading and both the RSP (unweighted S&P) and XLF are outperforming the S&P by a considerable margin. I think things have gotten a bit overdone and we might be in for a bit of a rally here (i'm seeing one as typing). We're slowly moving towards positive, but I feel sure we'll get there if not more.

We'll have to see if this holds into the afternoon. Previous rallies have faded and this one could just as easily do so as well.

Markets Fade: Big Suprise, Right?

Once again, the market fades into the afternoon. We're now down 25 points on the DJIA and down nearly a point in the S&P after being up decently in the morning. Like I said in my earlier post, I expect any up day where the financials don't participate to fade. I continue to believe we'll drift lower in the coming weeks until we get some capitulation, a succesful test of the lows, or a big news item.

S&P Chops Along; Bias Downward

The S&P continues to consolidate. Financials are still weak (XLF is flat on the day) and it's obvious that there are no aggressive buyers in the market. To turn the market around at this point the bulls need a big washout (not just slow trickle down days) or significant fundamental news. The washout would have to cause panic similar to the drop that led to the lows in January. This has not happened yet. A shift in the fundamentals would really have to be large (ie government bailout of bond insurers) and credible, which could be the hardest part. Traders don't trust Bernake or Paulson, period.

The drops continue to be more significant than the pops. Everything participates in the downside fade but only a select group participates in the upside.

Resistance on the S&P is at the 50 sma, right where it bounced of on the last advance. Support is at the January lows (1275ish). Continue to watch for tests of those levels and trade accordingly.

Cover VAR Below 51

VAR is trading right around 50.89 right now. I'd look to cover the short right here or lower for a couple quick bucks in profit.

Sell USO

Sell the rest at 78.40. Got a spike and it doesn't look very sustainable. Profit takers are coming in and it just doesn't have enough upside from here in the short term.

Sell COST

Sell COST at 65.60 for an easy 5 % gain. I think it has limited upside in the very near term and could easily come back down to test the 200 sma again.

Boone Pickens' Big Mouth

Boone Pickens got on CNBC this morning and let everyone know that he was shorting oil and natural gas. Considering that he's been one of the leading energy bulls for a long time now, I'm inclined to believe him (especially when he puts his money where his mouth is).

Oil isn't reacting all that horribly considering its been up so strongly the past few days. The action so far looks more like profit taking than a complete change in attitude. Right now its off just about a dollar (USO at 78.30ish). I'm waiting for more of a signal before recommending selling the second half of USO.

Bad News, Decent Action; COST

Even after a weak open off of negative CPI data, the market rebounded and was able to close higher on the day. Financials paused and even flourished a bit, but I wouldn't expect too much more to come. Relative to what we have been seeing in the past few days though, this action's pretty decent. As long as we don't get any terrible news in the morning, an up day is a good possibility tomorrow.


COST bounced off its 200 sma by more than a dollar today. It's looking like the moving average will hold and provide good support from here on. Keep a stop around 1 % below the 200.

Weak Financials Lead to Fading Market

Just as I suspected! Weak financials (especially the brokers) led the market to fade after a gap open that just couldn't go anywhere. The market's in a choppy trading range. You have to pick your spots and find the strength. That means oil (needs to consolidate a bit after such a strong gain), nat gas, commodities, and some select tech.


Look at the COV triangle. Watch for a breakout/breakdown. Right now it's really a toss up as to which one will occur. On one hand you have up days occuring on big volume and down days on shrinking volume. But, you have to still be aware that any adverse event in the broad market could really take down the entire market. It's best just to wait until the break occurs and take a position accordingly. It should be coming very soon.

HPQ's up after hours and should lead tech to a decent open tomorrow. We'll have to see if it can hold.

Oil's Flying

Oil is flying higher this morning, with the USO up about 2.5% now. I would sell half of the position here at 77.90ish for a quick 5 % gain.

Also, watch the financials! The XLF is only up around .3% while the S&P is up a full percent. Retail is struggling as well. I'm not calling a reverse (just yet) but I continue to think that this isn't the type action that will lead to a real sustainable gain. I'd much rather see the financials leading than flat.

I'm going to be watching intraday for fades between these sectors and watching the close for strength and weakness. I'll keep the blog updated.

Financials Hold Everything Down

Financials failed to participate in Tuesday and Wednesday's rallies and participated greatly in today's decline. As long as this continues no sizable rally will occur. Continue to watch for the retest (1275ish on the S&P). Once we get there, look to buy at support and stop out below.


One trade idea: VAR looks shortable again. That stock has a small channel it's running in from 54 to 51. Look to get in on the open or close to it tomorrow.

Make sure you check out Dr. Steenbarger's post highlighting today's negative TICK reading over at traderfeed. Here's the link: http://traderfeed.blogspot.com/. His blog is always contains excellent information.