Bear Season

Click here for the original post

By: Scott Redler

(Posted: 10/19/2010 05:12:00 PM)

The bears haven't gone into full hibernation quite yet

In this market, every four to six weeks we have a day to take notice (although the damage could have been much worse). Today was the first day in more than a month and a half that we did not hold very shallow support. We broke the accelerated uptrend, which should give us a move to at least 1148-1152 in the S&P. A further retracement down to the 1128-1132 level would provide an even greater buying opportunity. 

The damage was widespread, and began after the close yesterday with street-beating earnings reports from Apple Inc. (AAPL), VMware Inc. (VMW) and International Business Machines Corp. (IBM) that were deemed not good enough by investors.  The cloud computing sector is still in trouble with concerns about the VMware Inc. (VMW) report. Although revenue growth was robust, details such as deferred payments raised red flags for some analysts.  The stock tried to bounce early after the gap down, but make it back above $75. Equinix (EQIX) was the powerful right hook, and it looks like the cloud names are struggling to get up off the mat.

While Apple Inc. (AAPL) recouped some its after hours losses, high beta tech is showing signs that it is tired. It feels like the AAPL ramp over the last month and a half was by design, with big players set to unload shares and take profits no matter how bullish the report.  Apple crushed earnings, but has a reputation for blowing out conservative estimates. IBM bounced mildly also, but gave back much of its morning gains.

Banks are still a major problem, with Bank of America Corporation (BAC) trading down more than 4% amid news that a group of bondholders, including PIMCO, Blackrock, Metlife, and even the NY Fed, is suing for $47 billion in mortgage repurchases. Like we have stated on this blog before over the past week, the foreclosure mess is ugly and looks set to get worse by the day. JP Morgan Chase & Co. (JPM) also has heavy exposure to the crisis and the likelihood exists they too will be at least forced to take a sizable haircut.

Chart from this morning
The dollar surged and Gold had its first potent down day in months, driven mainly by China's interest rate hikes and Geithner's assertion that currency debasement is not a strategy in the economic recovery.  Bearish sentiment in the dollar had reached climactic levels in recent weaks, and the contrarian trade was a high percentage play in this case.  It remains to be seen whether the bottom in the dollar is short or long term. Oil is also coming under some pressure for the first time in this rally. 

This morning we recommended cleaning up some loose positions and preparing for at least a modest pull-in. After today's action, we still hold that view. At each level of support we will measure the strength of the market and leading stocks to see how heavy we will buy. Until then, I am back to cash flow trading and will let market “re-prove” itself. I will look at 1148-1152 to see if we get a bounce, then 1128-1132 would be a gift to buy if we can see it by election time. This doesn’t mean that there will not be action. When volatility comes in, active traders take advantage of over-emotion.


posted by:  elvis                        date: 10/19/2010

I don't like having opinions, basically i'll trade the trade.  
If i had to say something, i'd say we are really going to test the strength of the market now.

We all know it's unhealthy and unrealistic that something goes up forever, or that famous quote, and they live happily ever after.  What goes up, must come down is what i believe.

I think what will be healthy to see now with the markets is some kind of resting period, though the volatility of a sell-off would be nice too for day trades.  Vix is rising, gapped up today, that means the run up the market had may be over or weakening, we'll see.

Like redler say's, if you have open long positions, it's time to start taking some profits/lightening up.  You can always re-enter if the market suggests an opportunity.

No comments :

Post a Comment