Market Thought... oh baby

Could it be the babe-o-lishious older woman, Meredith Whitney :), moved this market with her bullish GS call so publicly displayed on CNBC this AM? When the market opened, there was hesitation, but throughout the day, the bullish interest is unquestionable. The market trend was a 45deg up angle.

Since the March lows, the banks have been up very nicely, but they have also been consolidating in a slightly negative trend for 3 months since May. With today's action, the internals of the financial index are changing. The most obvious is WFC breaking out. (ie... I would not be short the banks, as I am expecting a break out in this trend.)



In a previous 'Market Thought' post I highlighted the fact that she started turning bullish on the banks due to the loan modifications, and this could allow the banks to lead this market. Well, now we maybe getting it. (This also proves CNBC is so much more powerful a vehicle than Forbes magazine to get a message across.)

The market has been sitting on its 870-880 support for a few days, and today was a very nice bounce off.


The market looks to be holding, and if the financials break the 'consolidating-negative' trend, it will continue to rise. Mind you, breaking this trend, will be technically significant, as the SMAs will be breached. It could lead to breaking the 950 SP resistance, and lead the market to the 320SMA resistance.

Trades

I entered an initial position in FXI at high 35. Looking to double up around 33.

Desired positions...

BNI looks really interesting here. Will place a limit order for 65 (double up)

F - at 5

FCX - 42.5 (double up)

GS 130 Jan Calls when it is at 130. (Although 120 may seem like firmer support.)

JPM - around mid 30 (double up)

MA - around 150

PBR - around 32.50

PWR - around 18 (double up)

SQM - around 33 (double up)

ITRI looks interesting here, but I would rather have others as a core position. Will look to enter (if I do not get some of the other names) at 47.5 or so.

Will post charts later in the day, but due to a lack of time I can not upload them quick enough.

I like a bunch of names, but do not expect all the price targets to be achieved. With this break down I plan on positioning myself to a very low cash position. (Basically to have enough cash to make my daytrades, when they come up.)

The fact that we are breaking down has not escaped me, but as stated previously I am using these moments of weakness to replenish my portfolio.

Market Thought... of mice and men

Will the market break or will the market hold? The Markets are now sitting smack on their supports. Now its time for them to decide.

Its moments like these that make me rethink my thesis, and force the difficult task to second guess myself. On May 11th I had a similar thought with my "Market Thought... the challenge" post, debating with myself whether there was enough juice to make the markets keep going up. (subsequently re-reading the post, I realized I got the top end of this recent rally dead right :)

Well, now its time to re-evaluate the overall thesis...

Is there still a bullish case?...

1. Treasury’s rate rising signals, IMO, an increase tolerance to risk and benefits the stock market. At the moment this does not appear to be the situation. Looks like the yield wants to settle at 3.35 or so. However, it could bounce from there.



2. Inventories are too low and the replenishing of them spurs economic activity. I have not seen any reports or articles to state inventory replenishing is over. I do hear a lot of the talking heads speak to this cycle ending, but I think they are getting their ques from the market and not data points. (Although I am of the school of thought that certain inventories will remain low until credit starts to expand in this country again.)

3. Volatility is declining. Although the VIX has been up the past few days, it is still in a negative and declining trend. And barring a catalyst I do not see it breaching the current trend, let alone reaching the mid 3os.



4. The financial media has become blindly bullish. This is no more. LOL. They are following the pack.

5. Perceived stability within the financials. Stability with the financials is no longer a question, and with potential write ups do to mortgage modifications, financials can be potential leaders.

6. Global trade stability via the Baltic Dry Index. With all the negative talk recently, the BDI has been very stable, and rose pretty nicely in June. This is a true indication to global trade, and speaks to goods being moved, which makes me question certain negativity.



As for the negatives... all the negatives are still in play, except now the commodity prices are correcting. IMO, this can lead to a decoupling (at least in the short-term) of commodity prices and the market. With lower input costs, profits can rise. (I think this is why we are seeing names like PG, CL and the like are seeing money going into them. Not so much that they are defensive names.)

What will happen is ultimately any one's guess, but individual names are not pricey with the market at current levels. Now taking the above reasons into account, we have a very real reason to purchase stocks if they get too low in price. If the markets break the current support, we will have this.

The only caveat that will merit a lower market and individual stock prices will be the uncertainty that Cali/US Gov. will create if they have to go to a showdown. Uncertainty reduces values, hence provides a fundamental reason to a decline.

Basically, if we break down... I will be a buyer.

Market Thought... more clarity

Not to be a bearer of good news (with the risk of being horribly wrong :), the indicators are suggesting the markets will hold the current support levels.

The SP500 is oversold, and just about sitting on support.

The Naz is the same. Not as oversold, but very close to its 62SMA.


IMO, the Naz will bounce off the 62 SMA and lead the markets sideways to up. When I say sideways, I mean to the upper band of the market resistance until earnings come out.


I was reading a Forbes article today, indicating Meredeth Whiteny was forecasting higher short-to-midterm profits for the banks due to mortgage modifications. (read it on Yahoo Finance headlines earlier in the day, but their headlines are not functioning at the moment. And the Forbes website simply sucks at searching current articles, so I could not find it to link it.) This to me suggests banks can lead us higher after this earnings. Potentially allowing for the SP500 to hit the 320SMA or 1000-1050 mark.

Now, could I be wrong, and the markets break down from here so-much-so that the SP500 sees the low 800s or the Naz sees the low 1600s? Obviously. After all this is a probabilities game, and there is always a chance. The only reason I can currently think of that would have that impact would be defaults at the state level... ie Cali. Such defaults would cause a mini credit freeze up, and a spike in the VIX to the mid 30 level. (At which point I would be a heavy buyer of equities.)

Some would point to oil. If oil goes, so goes the market. However, oil is a good position to test its the low 60s, but it can test there with the market maintaining current support levels. The markets are not yet fully testing their support levels yet, and oil already saw the bulk of its declines.

Trade - PBR

Entered another position at high 36. Will wait for the next leg down, if it happens.

still waiting to see what develops before allocating more capital to established positions. (too early in the day to go gangbusters)

Charts

Here is a look at the PBR trade... the first area of support is at low 39

It obviously looks like it is breaking down, and the CCI suggests it will test the mid 37 level before fully oversold.

However, you look at Oil, and it is oversold and sitting on support.

IMO, the two set up to merit an initial position. BUT, if the the current level for Oil is broken there is nothing but air until the low 60s. (62.5 being the top end support, but 60 being firm support)

If Oil breaks down, expect the energy stocks to follow. (Its only natural.) With this, PBR has the potential to see 35 area.

But, I will not waiver. (Sell into the whore's hype, and buy into their fear) I will enter a second position at 37.50, and if when oil is in the low 60s I will enter a third position in PBR. (Where ever its price maybe, but I'm expecting around 35.)

Trade - PBR

Re-entered PBR... the theory goes, sell on the way up, buy on the way down.

I will post a chart later in the day. (No time due to the work load of my normal job, can only give a heads up)

Entered at low 39, will double up if mid 37 is seen.

Also, waiting on other trades to develop.