Yesterday’s Action

by Dan June 22, 2011 8:04 am • Commentary

Well, we got the big rally day. And the real question wasn’t whether it was going to come or not, but when, and for how long……the Nasdaq outperformed the SPX by almost 80 bps, which shows the power of AAPL computer when it decides to join the party.   I have been cautioning for a bit that a snap-back rally was going to come, although I did think we would test 1250 first…..The most important thing is that hopefully you were trimming shorts for the last week and didn’t get caught with your pants down yesterday, and lose all the gains that you had in the prior few weeks.

The rally was very broad and volume heavy and if it can’t stick for another day or so that would be disappointing in the eyes of bulls.  I am putting together a short list of stocks that I want to put back out as shorts on more strength as I believe we will have another test of the march lows at some point. One such name that I have become mildly obsessed with is SINA, the sort if YHOO of China, and its ridiculous volatility.  The stock has been something of a roller-coaster for the last year, up 300% from the July 2010 lows, then down about 45% from its April high, closing on the lows Monday and then only to surge 18% yesterday……this is unholy action and I can’t imagine this will end well for the stock, but I am not dumb enough to short it and will look for ways to replicate that exposure with options when the time comes, I will define my risk.  There is probably room to run here as the stock will likely retrace a portion of the recent swoon, but I don’t buy stocks that realize this sort of daily volatility……a dream for day-traders though, and if that is you, use mental stops and stick too them.

[caption id="attachment_2851" align="aligncenter" width="300" caption="1 Yr SINA Chart Provided By "][/caption]

The Bank stocks will get some play in the press over the next couple of days during the Basel Committee on Banking regulation. We will likely see headlines that move the stocks, similar with what we have seen regarding capital surcharges over the last few weeks.  The KBW (the etf that tracks the Keefe Bruyette Banking index) can be used as a decent proxy for the stocks as C, JPM, BAC and WFC make up almost 30% of the index’s weighting…..The Index really underperformed the overall market yesterday gaining a little more than a 1%.   I am still waiting for a little flush out here before I become more constructive, but with earnings estimates coming down so dramatically as we head into earnings, and the stocks not really participating in this mini rally, there may be an opportunity for a short term trade into earnings mid next month.

[caption id="attachment_2852" align="aligncenter" width="300" caption="1 YR "][/caption]

ADBE will be one to watch in tech today and may be very instructive of how similar names act as we head into earnings season.  The company beat already lowered guidance as disruption from Japan was less than expected in the qtr, but most of that was off-set by weakness in Europe.  The company guided a little softer to consensus for Q3 which has the stock down 3% in the pre-market (so far well shy of the 7% implied move in the options market)….keep an eye on this name, if sellers come in after the opening, and the stock starts to test Monday’s lows (and the 5 month lows of 30.30) then we could see other software names follow suit…..ADBE’s ability to stabilize and hold support after the almost 15% sell-off the stock has seen from the May highs will be important for tech stocks and the give a sense for investor sentiment for the space as we head into the end of Q2.  All eyes will be on ORCL which reports Thursday after the close to get a read on demand in Europe….if ORCL does not confirm the weakness that ADBE is seeing then maybe it is company specific.

[caption id="attachment_2854" align="aligncenter" width="300" caption="1 Yr ADBE Chart provided by Bloomberg LP"][/caption]


As for last night’s confidence vote in Greece, this was not unexpected and in my opinion has the potential to set up for disappointment. Riots and unrest are likely to increase as the people feel that their government is failing them…..if yesterday’s rally was largely predicated on Greek confidence then this will not last long…….I put on a low premium short in the FXE yesterday (read here) as I feel this will get worse before it gets better and I want to look for low risk high reward ways to play.

ALL EYES ARE ON THE FED and the Chairman’s second press conference following their FOMC meeting…..this was somewhat of a non-event back in April but may be of more interest this time around as QE2 is scheduled to end at the end of the month…..