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.