today’s tape

The market continues to rally, and many bulls are getting nervous.  So far, the current run up looks eerily similar to the other bear market rallies from the past 2 years.  We become violently oversold; the financials begin to stabilize and then rally.  The rest of the market catches fire (technology, commodities) and everyone proclaims the bottom is on.

Well, I’m not there yet.  But there are some bullish conditions starting to form again.  First, is the price action in crude oil.  Though the debate for a bottom in equities remains undecided, the verdict in is for crude.  It’s not going lower.  And this bodes well for all stocks in the commodity space (outside of the steel names).  Agriculture and energy companies are now worth owning.  Perhaps a basket of MOS, PBR and NOV.  Bullish oil energy prices are a sign that the economy is eroding less quickly than we thought.

We are also seeing a drop in gold prices.  After nearly touching the $1,000 mark, gold is starting to fall, and there has been no support of yet.  Most interesting is that gold has been dropping since the high was established on February 22.  Stocks were unable to find there bottom until two weeks later.  If the gold trades continue to unwind, this will drag down top performers like AEM and GG – two stocks that have now dropped 4% in ten days as the S&P 500 has gained 11%.

Unfortunately for the bulls, volume has not been anything out of the ordinary.  Many suggest new money is waiting for a pull back to begin buying.  The problem is that every “pullback” has immediately crushed new buyers of stocks.  When this market finally runs out of momentum (it could happen any day) the reaction to the DOW losing 2% will be very interesting to witness.  Will new buyers come in and bid the market higher, or where the bears taken control once again?  Have a trading plan for both scenarios.

today’s tape

I apologize for the prolonged absence.  So much has happened since my last post, so let’s get to it.

As I suspected, the broad market was pushed to down beyond the November lows as the banks continued to weigh on the major averages.  But something started to happen at the end of last week and this pat Monday.  The DOW, S&P 500 and the NASDAQ were still dropping, but the financials were no longer falling.  In fact, many were increasing, even as the DOW dropped over 1% on Monday.

For instance, look at GE.  This stock was following C into the low single digits.  But on the 5th and 6th of March GE was flat while the DOW lost about 400 points.  WFC, BAC and other banks were also flat.  The names that have been killing the market for months were stabilizing as the rest of the market continued to fall.  Two days later the market gained 5% .

This is the way the market has acted about 5 or 6 times since the current bear market started in late 2007.  The banks initiate everything.  They fall first and drag the rest of the market lower.  Once the financials can stabilize as the commoditiey and technology names fall, we usually see a large rally that can extend for week.  The DOW advanced 20% from the November lows (7,500 to 9,000).

Can we get a similar type move?  Yes.  Does it mean that the bear market is over.  No.  We should see a lot of short covering in the coming weeks.  Be patient when looking for shorting opportunities.  Let the market prop of the insurance companies and casino stocks before they inevitably drop again.