In reading a passage from Dennis Gartman (author of “The Gartman Letter”), I was left somewhat speechless (for once in my life). Gartman noted that the CEO of Bank of America (BAC) accused Fed Chairman Bernanke of being directly involved in the withholding of information from BAC shareholders as well as the American tax paying citizenry regarding BAC’s merger with Merrill Lynch. He further noted that if there is the slightest iota of truth to CEO Lewis’s claims, Chairman Bernanke would immediately become not only a political but an economic liability as he’d lose all credibility. Thus, if this storm cloud turns into a full-fledged hurricane, it could have dire consequences for the U.S. In the immediate-term, the problem would be exactly what it is we are seeing- a decline of the U.S. dollar relative to other currencies over the last few days. Some people are blaming the fall on things like the swine flu, but that makes no sense as that is a worldwide issue. Thus, it is entirely plausible that there is more to this than meets the eye. Forget whether one believes the job that Bernanke is doing is good or bad; the issue is one of credibility…would anyone be able to trust any Chairman of the Federal Reserve ever again? Furthermore, should Bernanke leave, it is prudent to assume that a new chairman would be put into office with beliefs more associated with President Obama than Chairman Bernanke. Keeping politics out of this, a development such as that would likely be another catalyst for a dollar decline because everything suggested by Obama involves massive use of the paper dollar so more dollars would make each dollar worth a little less. For equities, it is the last thing anyone needs. The markets have recovered nicely, but it is fragile. Thus the daily epiphany: this is one more burgeoning crisis to watch (or one that may well dissipate if Lewis gets a vote of confidence by the BAC board imminently). As we approach the warmth of May and exit stress tests and earnings season into the middle of next month, the markets will seek something else to follow thus political rumors may start to begin to circulate that much more about the futures of people like CEO Lewis and Chairman Bernanke.
Markets throughout the world rallied overnight as fears dissipated re the swine flu and hope sprung eternal again in the banking sector as stocks in Hong Kong and Europe rallied 1% to 2% across the board. The GDP came out terrible this morning (down 6.1%, much worse than expected) yet the futures shook it off; this is a very bullish sign. With banks up notably state-side, look for an upside bias as the markets have had every opportunity to sell off earlier this week and did not. It will likely be quiet again except among the myriad of companies reporting, but a definite bias to the upside all else equal. I’ll also note that if I prove to be wrong today, I’ll likely be very very wrong since all the signs seem to be so good this morning so as always, have a thought about what should be, but trade what you see.
Watch list:
04292009Eriklist.zip
Reiterating-
Please understand that if the ideas do not get to the hoped for set-ups cited below, more often than not, one should not blindly trade the symbol next to said idea.
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
DNDN- very positive drug results
BMY, FO, YUM- on “Mad Money” last night
WFC, BAC, PNC- late upgrade on bank stocks discussed yesterday evening on “Fast Money”
LIFE- good earnings
DWA- good earnings
PSYS- good earnings
CBI- good earnings
MPWR- good earnings
VRTX- closed near a high
EFUT- closed near a high
WBSN- decent earnings
COG- good earnings
RRC- good earnings
FCN- good earnings
GS- good earnings
HES- good earnings
JNY- great earnings
SLAB- good earnings
SVVS- good earnings
TWX- good earnings
WXS- good earnings
WYN- good earnings
ABX- good earnings
MHS- good earnings
NYB- good earnings
Q- good earnings
Bad-The following stocks have bad news and/or a weak technical pattern
ETFC- horrible revenue guidance
SSW- closed on its low after poor earnings guidance
VFC- bad earnings
TXT- bad earnings and doing a share offering
BWLD- bad earnings
PNRA- bad earnings
TRMB- poor earnings
TSS- bad earnings
JEC- closed on a low
MAS- closed near a low
FDP- closed near a low
AET- terrible earnings
ROC- bad earnings
ROK- bad earnings
MT- bad earnings
WMI- bad earnings
SAP- bad earnings
X- doing share offering of 23.6 million shares at 25.50
Earnings:
WED APR 29 BEFORE
ABX AEP AET
AFL AMG AMT
ARW ASCA AVA
BDC BHI CETV
CNP ENDP EOC
EWBC FCN GD
GT HES HST
IACI JNY MCO
MDP MHS MPS
MT MWV NJR
NVE NYB PX
Q RAI RCI
RGS ROC ROK
ROL SEE SLAB
SO SPW STR
SVVS TEL TXT
TWC TWX WMI
WXS WYE WYN
WED APR 29 AFTER
AEM AIZ AKAM
AMKR ANH ARRS
AVB BEZ BMR
BXP CAI CAVM
CBG CBL CBT
CCI CDNS CLF
CNQR CTXS CVD
DNB DPL DRC
DRIV DST DTE
EFII ESRX ESS
FLEX FLS FORM
FSLR FTI GMR
GNK HAR HIW
ITRI ITC JDSU
KEX LPS MANT
MOH NTRI O
OI OII OKE
ORLY OSIP PLD
PLXS RE RNR
RYL SAP SBUX
SKX SPN STM
TCO TER TRN
TTEK UNM URI
V VAR VARI
WGL WLL WLT
WSH
Good luck today.
Epiphany Trading, LLC
http://www.epiphanytrading.com/
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
This morning's rally is interesting on a number of different levels. The immediate question is, why did the US equity markets immediately shrug off and rally on this morning's much worse than expected GDP figure -- especially in front of this afternoon's Fed meeting?
ReplyDeleteFirst of all, the expectation coming into today's session was that we would see two key datapoints that had the potential to decide the near-term direction of the market: the premarket Q1 GDP figure and this afternoon's Federal Reserve statement. Adding to the uncertainty today is the rapidly evolving situation with the swine flu, which has become something of an overhang and presents additional headline risk each morning. (Although we're in the midst of earnings season, the recent numbers have not been surprising enough on the upside or downside to provide direction.) In the final hour of yesterday's session, we saw some cautiousness appear ahead of today's potentially pivotal session, as market participants either lightened up on their longs or re-shorted the market into the close.
Early this morning, this cautiousness had evaporated as traders sat down at their desks. Overseas markets were seeing modest rallies due to some regional-specific catalysts: in Europe positive earnings reports from a handful of belwether companies, a financial sector upgrade, and a better than expected Eurozone sentiment reading sparked rallies in both the Euro and European equity markets; in Asia a number of country-specific catalysts such as a better than expected Trade Balance figure in export-driven South Korea as well as a solid earnings report from Sinopec in Hong Kong were moving individual Asian markets higher as well. The strength in the overseas markets spilled over into US equities, lending a curiously persistent bid under US stocks as we got closer to the release of the 8:30ET GDP data.
When the much worse than expected US GDP data hit the tape, the reaction in futures was immediate: a knee-jerk but modest spike down from pre-mkt highs, and an equally rapid bounce back, leaving futures essentially unchanged from the elevated levels that they were trading at before the data hit. Once investors actually had a chance to examine the data internals, both the bulls and bears found ammunition there: the bulls likely pinned their hopes on the fact that real personal consumption expenditures rose at a stronger than expected rate, while the bears would note that January and February can be exaggerated by strong seasonal factors and that the business investment data were terrible. So why did we rally? The short answer is that the reaction this morning backs up the view that although equities have been consolidating recently, the bulls still control this market and they view the Q1 GDP data as being firmly in the rearview mirror. The bulls have essentially already written off the first half of 2009 and are pinning their hopes on an improvement in the back half of the year. Money managers need to beat their benchmarks, and with month-end arriving tomorrow, they know they can't outperform anymore with high cash levels -- especially if they were caught sitting on the sidelines as the sudden March rebound progressed.
Looking ahead to the Fed meeting at 2:15ET, a similar line of thought is apparent: now that the drama of rate cuts has been taken off the table, and with little news expected in terms of the Fed's "quantitative easing" policy, today's meeting is shaping up as a rare non-event. As long as the Fed "does no harm" in terms of creating doubts regarding the prospects for a 2H09 recovery, the bulls will remain in control.