Market Touch: 9/7/11:
Yesterday’s rally off of the opening lows was quite impressive to say the least…..in the face of a 2 day, almost 6.5% sell 0ff in the DAX, the SPX did the unthinkable and closed down a little less than 1/2 % . As I write this morning at 7:30am the S&P futures are up nearly 1.3%, while the DAX is up almost 3%.
European equity market strength this morning is largely the result of 2 factors, first Germany had a very strong reading for Industrial Production in July and a German High Court ruling that the country’s contribution to the already agreed upon Greek rescue package is constitutional. Many now think with this out of the way, that the beleaugured German Chancellor will have an easier time expanding the European Financial Stability Facility that was put in place early in the summer to combat the sovereign debt contagion in early summer….this will be voted on Sept 29th. I think the Euro is telling you the story here, and its inability to rally on this news after its recent downdraft could signal more problems to come, especially in the face of the Swiss Central Bank’s action yesterday to intervene and pressure their currency vs the Euro……
As for the equity markets today, I guess Europe got a little oversold and the powers that be on this side of the pond decided that Friday’s almost 3.5% sell off following the Jobs data, and the yesterday’s damage on the open sufficiently reflected our problems over here…..I don’t buy it and I believe we will soon break yesterday’s lows and close below the Aug 9th closing low of 1121. Earnings warnings and estimate cuts are likely to be prevalent as we limp into the end of Q3. I guess the market could run a little bit into Obama’s speech tomo night, but I will treat this rally and my longs just like I have been treating my shorts on days like yesterday: I take profits and re-adjust…..for instance mid last week as the market rally off the Jackson Hole Speech lows started to get long in the tooth I started buying SDS, the SPY double short inverse etf….this served me very well on Friday and Tuesday and yesterday morning I sold the common for a nice gain and swapped into a short dated, low premium SPY put fly to maintain some broad short exposure, but defining my risk. Additionally on Friday, I suggested a shorted dated low premium short in INTC that I also took some profits in on yesterday’s open…..you gotta move your feet in this market and take what it is giving you. I did this on the long side too off of that very short term bottom after Bernanke’s speech, I bought common and then took profits after a couple days and swapped into call spreads…again defining my risk. So there is a little theme here…..the volatility is likely to stay for the time being and if you can be nimble and not be too stubborn there will be daily opportunities to take advantage of the volatility in a defined way, even with the VIX in the 30s.
So I guess the gist of it here is while I am obviously bearish on a macro level, I am very cognizant of the fact that there will be short term, trade-able snap back rallies…Yesterday (below) I said the following, and this pertains to both the long and short side of the markets:
As for this morning, I think you have to be careful just walking in and shorting the open, the healthiest thing to do would be to access the damage on the open and then wait for a rally, more often than not there will be one short covering rally on a day like today, if in fact we were to close on the lows…..You don’t want be the guy that sells the low on a day where we get some sort of surprise fed or European central bank action……shorts will cover all day.
As I came in short, I have my list ready of things that I want to buy if it gets overdone and shorts that I want to continue to lean on and sell on rallies. You do not want to be too early in either task, but inevitably you will, so you have to have conviction on the individual stories and have a market call about the near term direction and the intermediate term. Near term I am obviously bearish, but intermediate I am resigned to the fact that we will get very fierce snap back rallies like the one we had after Bernanke’s Jackson Hole speech. Those are very trade-able and if you can be nimble and define your risk they can make your year.
Well the game plan is the same today from the long side……let this thing run a little and if you agree with me try to short at certain technical levels with clear stops in mind……The SPY and SDS shorts that I had on recently let me hold onto some longs that I have suggested on the site in the last couple weeks; AAPL, S, ETFC, CSCO, MS, BAC and GS (banks went from common stock to call spreads early last week). I am going to continue to look for opportunities in single names on both sides of the market while also continuing to either hedge longs for fear of new lows or make outright bearish bets that we see 1100 in the very near future.
Market Touch: 9/6/11:
Been a bit of a busy night for our S&P futures down 2.5% out of the gate, then down only 1% after Europe opened up and now back down 2.5%. It is unavoidable, without any coordinated intervention, we are going down, we will make a new closing low this week and we could finally see a little panic. Tape bombs will be continually lobbed out of Europe and most of which we won’t at first understand…..Obama has his Jobs speech Thursday night which will most certainly be a disappointment, and I would be surprised if the Fed’s indecision on methods of stimulus changed publicly before then, especially now that they have extended their Sept 20 FOMC meeting to 2 days.
As I write at 9am, the DAX is now down 1.5% on the day, and 3% from the high made shortly after the open, this horrible action to say the least and the index is now down almost 11% month to date…..Something has to give there, and likely to see some central bank action there prior to here. I worry that they will be half measures like restricting short sells…..I would view that as very negative and would look to short any rally based on that sort of restriction.
G0ld is off 1.5% from all time highs after the announcement that the Swiss Central bank will impose a ceiling for the franc vs the euro. With the Euro as weak as it has been in the last few days, Gold moving around in dramatic fashion and the DAX moving around at what feels like 3-5% increments, things feel like they are about to get much worse before they get better…..
Back over here, bank stocks are obviously the focus and most are quickly approaching the lows they made 2 weeks ag0…how they react at those lows will be very telling….I also want to keep an eye on stocks that are thought to be defensive, pharma names and high dividend payers, telco and utilities etc….if these names start to give up with some of the more speculative names;; Chinese internet, our our new issue internet and then some high valuation consumer names like CMG, WYNN, HANS PCLN and LULU then watch out below…..
As for this morning, I think you have to be careful just walking in and shorting the open, the healthiest thing to do would be to access the damage on the open and then wait for a rally, more often than not there will be one short covering rally on a day like today, if in fact we were to close on the lows…..You don’t want be the guy that sells the low on a day where we get some sort of surprise fed or European central bank action……shorts will cover all day.
As I came in short, I have my list ready of things that I want to buy if it gets overdone and shorts that I want to continue to lean on and sell on rallies. You do not want to be too early in either task, but inevitably you will, so you have to have conviction on the individual stories and have a market call about the near term direction and the intermediate term. Near term I am obviously bearish, but intermediate I am resigned to the fact that we will get very fierce snap back rallies like the one we had after Bernanke’s Jackson Hole speech. Those are very trade-able and if you can be nimble and define your risk they can make your year…..Oh and you have to be more right than wrong!
We will continue to see cross-currents, UTX this morning reiterated their 2011 revenue and earnings guidance, but the stock is still down 3%…..if markets stop caring about news like that either tells me what we already know that correlation is at record highs and/or it just doesn’t believe corporate managements, which would be far worse.
So today’s game plan is trim some shorts if we get really messy on the downside and look to put things back out on a rally. Don’t be stubborn with longs that have reached stops, always make a sale at pre-determined levels, even if just a portion of the position, live to fight another day. This will only help you wade back in the water when the time is right.