Well I’m uplifted!
We had a fantastic day in the markets yesterday as we went bottom fishing in earnest early in the morning, picking up entries on JPM, X, IP, VNO, HMY, M and IYR early in the day, ahead of my 12:48 observation to members: "BAC breaking up along with their preferred stock – that’s a good sign. SKF back at $192 test area, XLF at $7.45 so just a little push and maybe we can get somewhere!" Indeed watching our levels paid off and we went flying up after that. As I often say, you NEED to make these buy decisions at the bottom, it’s too late once the train starts moving. We did grab a momentum play on BAC as they crossed $4.40 but, other than adjusting our DIA cover play, we had no need to make adjustments during the run-up because it’s what we were playing for.
We went into the close fairly neutral (a very slight bearish bias on our DIA puts), having accomplished our mission and not being sure what kind of speech Obama would be giving. It turned out to be a great one and the Republican response by Gov. Bobby Jindal was so mind-blowingly awful that Rachel Maddow was stunned to the point where she was unable to speak and I will leave my own commentary at that! On this same clip, Cris Matthews had the comment of the week, saying that the Republicans were so mired in responsibility for this crisis that they had to outsource the response (Jindal is Indian). I found that very funny…
As we expected, there is no "quick fix" in Obama’s speech and we’ll see how well the markets hold yesterday’s gains. We would have been more bullish had we not had so much trouble with our two critical levels I said we should watch in yesterday’s morning post: Russell 411 and NYSE 4,790. As I said in the morning, these were just the levels we needed to break in order to consider the day’s action anything more than a weak bounce off the horrendous drop of the past two weeks. That’s why we do not jump on the bandwagon once the rally gets going – we do our bottom fishing at the bottom and we sell or cover into the rallies. If it’s a real rally, we have a long, long way to go and we will have very strong buy signals – a good start would be holding our watch levels today at: Dow 7,245, S&P 760, NAS1,425 (I raised that one), NYSE 7,490 and Russell 411. We also want to see the SOX over 200, still pathetic but something and let’s not even consider being bullish with the Transports below 1,600 (7% to go).
Oil is at $40, the DBC needs to retake $20 and the BDI needs to hold 2,000 – None of these are signs of a "healthy" global economy but they are signs of a pulse, and right now we’re not even sure we have that! Global economies were generally perky this morning, following Obama’s most upbeat speech since the campaign. Bernanke was also generally upbeat yesterday as he addressed the Senate, hopefully we can get past the House hearnings today without a misstep and have another nice afternoon rally.
China is certainly doing their part, committing Trillions of dollars to their own stimulus program and President Hu Jintao announced this morning (good timing) that even stronger measures may be required to boost domestic consumption. "China’s advantageous economic conditions have not fundamentally changed, but downward pressure on economic growth has intensified," Hu was cited by state radio as saying during a State Council meeting. According to JPMorgan chief economist Frank Gong: "Top of the agenda will be to pass the Social Security Law, approve proposals for medical reform and discuss educational reform." Wow, sounds like Hillary accomplished a lot on her China Trip! Boosting consumption in China is very difficult as those without a social safety net are not confident enough to go out and make long-term investing decisions – something the communists understand but the Republican party does not…
Meanwhile, Japan’s Aso has come to us and is meeting with our President this week. Aso pledged $2Bn to support our troops and reconstruction in Afghanistan and, in another indication of the globally coordinated push to improve the markets, his Finance Minister Yosano said: "Stock prices must in principle be determined by market forces, but since excessive falls would affect the health of banks, insurance companies and others, the government must come up with generic steps to support stock prices." The Nikkei climbed 2.6% in morning trading as the Yen continues to pull back against the dollar while the Hang Seng bounced back 1.6% and the Shangai held flat at 254.
By the way, on Feb 4th I said: "Dollar dumping helped our market yesterday as the dollar fell 1.25% and we will probably retest the 50 dma at 84 before turning back up. There are still no viable alternatives for currency investors and the Yen index is back at 112, just about where Japan needs to force it back down, most likely by trading Yen for dollars so let’s keep our eye on that move this week. A combination of dollar strength over 86 and a big build in crude today could send oil back to its lows and we’ll be looking for short plays on USO and XLE (and, as always, XOM if they dare to test $80) if we get another pointless run-up after a better than 3M build in crude inventories but I think we break +5Mb today and it will be tempting to just go short on oil into this morning’s report.." Check out this Yen chart, check out this USO chart, check out this XLE chart, check out this XOM chart – You’ve gotta love getting your information that far in advance!
European markets are up about a point ahead of our open. A plane crashed in Amsterdam with 9 dead and 125 survivors. They still don’t know what happened and, like all plane crashes, this one spooked the markets but it doesn’t seem like a terrorist incident. Google is joining the long-running case against MSFT in the EU courts that was originally pressed by browser rivals Firefox and Opera. This could explain MSFT’s severe stock drop this week as any thoughts of the smaller companies giving up due to lack of funds is now out the window as Google can fund this case from the ad revenues from the people searching for information about this case…
Not much to do today but watch our levels. The next move is Bernanke’s and then we’re back to waiting for Geithner but I do reserve the rights to call an audible during comments today! GM and F will be guests at the White House today as they meet to discuss a way forward. Our F shares should get another good pop today and let’s keep in mind that taking half off at 50% allows us to put a stop on the rest at 25% and lock in a 37% profit. I know it was supposed to be a long-term hold but 50% in a week is a pretty good annualized return!
FSLR really stunk up the joint with last night’s earnings and get hit with a slew of downgrades. We’ve been short on them since they were at $300 last May and they are my least favorite solar play for reasons I outlined in this post. We’re done with them but they are dragging down the entire solar sector so a good second chance to catch SPWRA, my favorite solar play, at $30. You can sell the $25 puts naked for $1+ on the morning dip, which is a fun way to get in (or not get in and get $1) or you can buy the stock and sell the Apr $25 puts and calls for $11 for a net entry of $19 ($6 profit if called away) or an average entry of $23 if the stock is put to you below $25 in April. That is a 23% discount off the current price and THAT is the way you enter a stock position!
We may get a small upside surprise from existing home sales at 10, oil inventories should be net flat at 10:30 and then it’s the Bernanke show – let’s sit back and watch the fun!