Quick Market Touch

by Dan August 22, 2011 9:27 am • Commentary

Europe’s strong showing this morning, after Asia’s generally mixed closed has helped our futures, now up almost 1.75%, after Friday’s near closing low of this cycle.  Brent crude is down 3%, while WTI Crude is up a buck despite the progress of the Libyan Rebels in Tripoli and the impending ramp of production from a level now that is a fraction of the pre-civil war levels…..Gold will of course continue to go up, and I guess the real question this week is what will Treasuries do as investors place their chips in front of Bernanke’s Jackson Hole speech on Friday.   While many expect continued bond buying in an effort to bring down longer term yields, anything short will likely be disappointing for equity markets.

Thursday and Friday’s volume saw a considerable pick on the downside from the lull in the first three days of the week, which could have had something to do with Options Expiration on Friday’s close.  I am not a fan of gap openings like this, especially when they are futures driven……this morning I will be keeping a close eye on the DAX, which is my opinion is the real “tell” for Europe.  The index is currently under-performing its European peers, only up 1.6% on the day vs the Euro Stoxx 50 which is up about 2.6%.  If the DAX fails into their close, so goes Europe and will clearly weigh on our markets…..

As for our markets, any utterance or suggestion of the Fed expanding it’s balance sheet could cause a short squeeze, less I feel because of what many feel would be the intended result (as most feel that QE2 didn’t work), but more because we are so oversold.

Bank stocks continue to be important to my thesis that we can’t rally with a mini panic, and any continued weakness on rally days will only strengthen my resolve that we will get this mini-crash starting with this beleaguered sector.

I am also keeping a close eye on once high fliers like NFLX, COH, TIF, AMZN, LULU, WYNN and CMG to name a few…..these names are all very sensitive to consumer spending and all saw amazing rallies in their stocks leading up to July……some of broken and may have a hard time coming back….if these stocks can’t stabilize on bounces like today then this tells me that the speculative nature of the recent equity binge in the Spring may not return.  For instance the performance of a few stocks in the some of the large index was masking the broader weakness of many sectors.   When you consider that AAPL and AMZN make up almost 13% of the Nasdaq 100 performance the rally might have been fairly narrow with those 2 stocks once eye-popping year to date performance…..We will need to see rallies broaden out for them to be believable off of any bottom.

This week is likely to remain volatile to state the obvious and I think you have to let rallies go a bit before trying to lay them out…..opening up nearly 2% today seems tempting, but we could be up 4% on fumes…….I remain short BAC and JPM that I have on from higher levels and on Friday I started legging into a SPY weekly 110/105 Put Spread to play for a test of the Pre-Jackson Hole 2010 levels of last August……and will look to add to this….

As always move your feet and don’t be stubborn……remember that we rallied almost 8% off the low 2 weeks ago and we could certainly see that sort of move with any decent news again….

I am not hell bent on catching the bottom as I feel the rally off the lows, if it comes, will be a sale, I am hard pressed to think we close up on the year at this point and the closer we get the more difficult it may become, especially if reading on GDP Friday gets worked lower than already dismal expectations.