Yesterday’s Action: Widow-Maker Edition

by Dan June 24, 2011 8:36 am • Commentary

Yesterday’s market activity was the sort of stuff that can only be summed up with one word; WOW.  Days like yesterday take years off trader’s lives……The sort of frustration you felt if you were long Wednesday and rode those positions right until the afternoon’s V reversal, was probably equal to the disgust that those who were short (me) and really thought they finally had them down for the count felt when you saw healthy profits turn quickly to unhealthy losses.  We are obviously in a very nervous market that can change course on a dime.  This frantic activity is telling me one of 2 things, we are either going down and hard soon, or we will see some resolution to the issues causing the volatility and will head back towards the highs.

Those hoping that strong corporate earnings in the U.S. will come to the rescue will likely have to wait as results have been sort of a mixed bag this week…..especially in tech with JBL and RHT beating and raising and the stocks reacting positively, while software names like ADBE and ORCL disappointed with both stocks down inline with the implied move in the options market. ORCL is down almost 4% in the pre-market as some felt the inline guidance given was not enough, and while software sales came in at the high-end of previous guidance, their hardware division (SunMicro) was performing worse than expected and could be one of the first signs of an IT spending slowdown.

The SOX could also weigh on the Nasdaq as MU missed on eps and revenues as they blamed channel inventory build predicated on weak demand for consumer notebooks and desktops.  This has been a continuing theme in the chip space as INTC‘s strong Q1 results and Q2 guidance was largely buoyed by higher end servers for the enterprise……

Tech could hold the key today even as rumors of Greek austerity deal with IMF fueled yesterday’s late day rally, tech was the canary in the coal mine with stocks like AAPL and some members of the SOX up on the day even when the market was at its lows.

Lots of market participants were left scratching their heads by the coordinated effort to release oil from the strategic reserves in an effort to lower the price at the pump….this has only been done 4 times in history and Republicans are saying the President is playing politics here….oddly this action may have unintended effects as Oil production may be capped near-term to digest this 60 million barrel glut and could lead to shortages once it is worked through as capacity went off line….Lower crude at this point does not exactly spell relief but rather weakening demand and more a proxy for slowing global growth…..

Bank Stocks continue their long trip back to the bottom. Even in the face of the market’s massive late day reversal, these stocks just couldn’t join the party.  I swear I want to be more constructive on this space, even if just from a sentiment standpoint, not even based on fundamentals, but the stocks just aren’t giving you any reason to dip your toe in the water.

The SPX bounced again yesterday off of it’s 200 day moving average around 1262 and appears to remain range bound btwn that level and 1300…..I think we will have our answer soon enough about the course of the market for July once we get by this Greek garbage next week.    Any meaningful reversal of yesterday’s late day rally would be particularly bearish and close below the low would spell lights out…….I dug in yesterday and added to some market shorts and that obviously was a binary bet, but I really thought they were finally going to break…I am not chasing longs here and need to see a close above 1300 in the SPX with some broad participation and little more constructive news other than news telling me that we averted disaster of a Greek debt default to get me bullish.  Don’t be too stubborn (like me) and move your feet, and that means taking some profits here and there, but more importantly cutting your losses, using stops and defining your risk around events when possible.

S&P futures are up 30 bps as of 8:31 am on a slightly better durable goods number coupled with a slightly better than expected GDP print.  This is certainly better than bad data, but generally this will be overshadowed by any headlines regarding Greek votes next week.