Traders,
Yesterday we saw a rather mixed market - still hovering around the resistance areas. The Merrill Lynch news - while bad was not as bad as people expected - which help give a boost to the financials.
Is the worst behind us? We thought so in October last year - during the first round of huge write-downs. However, investors are tired of the bad news, tired of hearing the Obama vs. Hillary issue, tired of hearing about higher oil prices, tired of hearing recession news - this market really wants to rally.
As a friend of mine pointed out earlier this week - what ARE people to do with their money - if not BUY SOMETHING? He is right - to a point. Additionally with the removal of the short-sale rule, we have seen some of the biggest short positions - specially during the first quarter.
One opinion I heard - which seemed to have SOME validity was no more momentum room to go down - as shorts are already over-extended and most of the short-term long sellers are done. The rest - being the long-term holders are just not selling - because they have either not panicked or will NOT sell for other reasons - maybe capital gains.
Regardless - the market wants to go up - in the face of the economic slow-down.
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Google - is hearing the clicks of money 
Google beat earnings pretty handily - it was interesting that click-through advertising reports earlier this year saw a massive slow down at Google and many thought that Google's earnings would be lower. However, for some reason - the Google earnings solidly beat what earlier reports in the advertising sector indicated.
Obviously - those surveys and data reports on online advertising got it seriously wrong. The stock - within a minute jumped $50 points. For sure the sellers just stepped away - and from I hear on the streets there is some serious panic short covering going on to help push it even higher. It eventually trickled up another 20-30 points for a total of 70-80 points in aftermarket trading - in the 520-530 range.
Of course I think that is a combination of euphoria and short-covering - while it might of needed a good pop - 80 points in a couple of minutes is a little bit crazy by any standards. One thing is for sure - Google is carrying the dot.com torch and the message boards around the world are clogged with buy recommendations - of course.
The Chinese BIDU Google counterpart is also getting a big pop this morning - for what is good for Google - will be good for other search engines. Interesting to point out that Google had lots of revenue outside of the US.
Expect to see serious up-side in the tech sector - the NDX will probably rip - 1900 in the cards - sure why not!
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CITI GROUP - Big Losses = Good News!
$12 billion write downs - time to buy. Boy this sure looks like October 2007 - this is the last write-down - they have the worst behind them. We keep hearing the same story over and over, this was the last write-down, we have put the worst behind us. The stock is seeing some huge upside in the pre-market - mainly because they came in line with what the average consensus thought. Of course a few thought it would be worse and in the $20 billion write-down range - but that was an outlier.
We expected bad news, they delivered bad news, and it wasn't worse than we expected - so maybe it's time to buy? I am not too sure about that - but they financials have been loaded with shorts - so we should see some good covering and a rally.
No doubt the new CEO has got a hold of this ship in the storm. He has fired 6,000 people, raised $30 billion, and replaced the chief risk officer. They had some serious bumpy roads ahead as they expect the foreclosures to continue in the residential sector and that the credit cards will need MORE reserves as defaults have also increased.
Citi is seeing a good move to the upside in the pre-market - boosting the Dow futures pretty solidly.
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CAT - Thanks China!
CAT also saw big earnings with oversea sales - the domestic sales however were seriously weak. So I guess the story will continue to be Global Exposure as India, China, and several emerging markets. CAT is a serious deliverer of heavy equipment in these markets and the weak dollar is giving them a huge boost in profits as well. The stock is seeing some big upside moves in the pre-market - thus pushing up the Dow futures further.
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Futures Pre-Market
The futures are rocketing across the board to the upside – first Google, then Citi, and Cat – across the board they are up strong. The futures are front running the cash by about 5 points – so expect a slight pull back at the opening as the ARB short futures and buys the cash basket. The Market will pop at the opening and the ARB traders will put some upside pressure on the cash basket in the first few minutes.
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Support / Resistance
We have been hovering around resistance and just below it for a little while – just like at the short-term supports. The Google started getting this market excited again – and people are ignoring the Citi write downs and expecting them to be the last – the WORST IS BEHIND US – attitude is driving this market up.
INDU 12250 / 12750 (This is a KEY day at the 12750 area – for sure at the opening we will be above it and if we close way above it then we have broken the resistance and looking to gain new ground. I am skeptical about the legs of this rally and how long it can go in the face of a slowdown – but don’t fight it – let it rip and do NOT try to call tops if we break 12750 – make sure to have OTC call gamma loaded on the sheets.)
NDX 1800 / 1900 (We will probably be very close to 1900 at the opening – Google is driving the whole index higher.)
SPX 1350 / 1375 (1400 is in the cards today if we get too nutty to the upside. The question is where we close)
RUT 680 / 720 (We could touch 720 today – watch the close)
We are touching and breaking through a couple of resistance points on the opening – the question is do we CLOSE above them? These are the places to get short and over hedge to the upside in case of a breakout. This is a euphoric rally – the economic landscape has not changed – some companies are doing VERY well with the weak dollar – but domestically we are having issue. Expect these indices to break through at the opening – the real question is going to be how we close. For sure the seller have stepped away and the shorts are being forced to cover.
I would call the resistance areas more STRADDLE points than anything else – a place to get short – but keep upside curvature on your sheets. Don’t FIGHT it if we break higher to the upside – just get on and ride it up – but ROLL UP HEDGES!!!
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Futures Pre-Market
The futures are rocketing across the board to the upside – first Google, then Citi, and Cat – across the board they are up strong. The futures are front running the cash by about 5 points – so expect a slight pull back at the opening as the ARB short futures and buys the cash basket. The Market will pop at the opening and the ARB traders will put some upside pressure on the cash basket in the first few minutes.
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Support / Resistance
We have been hovering around resistance and just below it for a little while – just like at the short-term supports. The Google started getting this market excited again – and people are ignoring the Citi write downs and expecting them to be the last – the WORST IS BEHIND US – attitude is driving this market up.
INDU 12250 / 12750 (This is a KEY day at the 12750 area – for sure at the opening we will be above it and if we close way above it then we have broken the resistance and looking to gain new ground. I am skeptical about the legs of this rally and how long it can go in the face of a slowdown – but don’t fight it – let it rip and do NOT try to call tops if we break 12750 – make sure to have OTC call gamma loaded on the sheets.)
NDX 1800 / 1900 (We will probably be very close to 1900 at the opening – Google is driving the whole index higher.)
SPX 1350 / 1375 (1400 is in the cards today if we get too nutty to the upside. The question is where we close)
RUT 680 / 720 (We could touch 720 today – watch the close)
We are touching and breaking through a couple of resistance points on the opening – the question is do we CLOSE above them? These are the places to get short and over hedge to the upside in case of a breakout. This is a euphoric rally – the economic landscape has not changed – some companies are doing VERY well with the weak dollar – but domestically we are having issue. Expect these indices to break through at the opening – the real question is going to be how we close. For sure the seller have stepped away and the shorts are being forced to cover.
I would call the resistance areas more STRADDLE points than anything else – a place to get short – but keep upside curvature on your sheets. Don’t FIGHT it if we break higher to the upside – just get on and ride it up – but ROLL UP HEDGES!!!
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Conclusion
We are in a week of big earnings releases - some good and some bad - but good or bad news only means the market is going up as money seems to be moving in, even though yesterday was a light volume day. Companies like CAT, COKE, IBM and others with large overseas sales seem to be getting a solid kick in revenues on the back of the weak dollar. The financials, that have been getting beaten up pretty bad - is rallying on the back of bad news and MORE write downs - but they came in as expected and some have said the stocks were already priced in with more write downs. The data and reports on internet advertising had been pretty bleak - including Google - but then they shock everyone with better than expected earnings. The banking sector continues to report massive write downs, more lay-offs, dividend cuts – but investors expect that – it is a sign of the times – as long as they don’t go bust – it’s time to buy.
There is no rhyme or reason for investing in this market – and big smart money has already moved over seas. Is this a dead-cat bounce – a euphoric optimistic rally in a bad economy? OR was that the bottom and everything is rosy again? I don’t think we can call any one day rally or sell off the end to this volatile market.
The VIX has broken down through 20 – which is rather surprising – and it is NOT indicative of volatility – as you can see the market is up HUGE at the opening. It is a sign however there is NO FEAR in this market – investors are not scared and are getting long – and that DOES scare me.
I expect more volatility! In the short-term watch the close – if we close significantly through the resistance points – we have broken out of this range. If not – it could just be a dead cat bounce. A continued momentum, if we do break, needs to be treated with respect – because we could easily revisit the lows.
I expect more volatility! In the short-term watch the close – if we close significantly through the resistance points – we have broken out of this range. If not – it could just be a dead cat bounce. A continued momentum, if we do break, needs to be treated with respect – because we could easily revisit the lows.
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