I noted yesterday that the markets entirely shook off the health care bill passage on Sunday night. But I want to go into a couple of crucial points that I barely touched upon. Markets are forward looking in that the theory goes that every major outcome is factored in, but that can only go for so long. I mean, it’s ostensibly impossible to truly have a crystal clear version for what will happen in 2030. Nobody can predict natural disasters, for instance. But there’s another facet as well in that another popular market hypothesis is that all available market information is factored in to things. While I don’t completely subscribe to that one either, it’s actually quite plausible in that the ‘market’ is the true arbiter and ‘knows’ much more than the average investor/trader. From that regard, the market was able to parcel out the healthcare plan for the broader investor class faster than most of us could figure out on Monday. It is true that taxes are going to broadly go up for many people. But the legislation would apply Medicare taxes to investment income received on wealthier households ($200,000 for individuals and $250,000 for married couples) for the first time in 2013. The long-term capital gains tax rate would rise to 20% in 2011 for the same earners. Also in 2013, Americans under the age of 65 would not be able to deduct medical expenses until said expenses exceeded 10% of income rather than 7.5%. Individuals who don’t purchase insurance would be subject to fines in 2015 and 2016. There are obviously many other provisions as well, but you’ll note that the earliest any of these taxes go into effect is 2011- that gives plenty of time for politicians to play political games in gearing up for the 2012 (and 2014) election seasons. What it also means is that the budget deficits will balloon with mass expenditures and no additional tax revenue in the immediate-term. This is not opinion. This is fact. But all of this is a major reason if not the reason why the market not only sold off the last couple of days, but continued to rally. This is a de facto stimulus as many people will now not pay for healthcare plus the taxes have plenty of room to be debated as time progresses! So, right or wrong, nobody is scared yet. And because taxes aren’t gonna be levied until now (and the cynical among us wonder if they’ll be pushed back due to the presidential election in 2012), the money keeps flowing. And if the money keeps flowing, so does the stock market which is why everyone waiting to pounce on weakness the last two days has been totally mistaken.
Markets overnight were ahead slightly in Asia with Hong Kong up 0.1% and Tokyo up 0.4%. The trend shifted in Europe, however, as Fitch downgraded Portugal’s long-term foreign issuer default rating a notch to AA- from AA. This sparked a sell-off in the euro through the 1.35 barrier, the pound thru 1.50, and commodities as well with gold and oil both off more than 1%. European bourses immediately sold off, but they have come right back; most bourses are down only ¼% as of this writing with Germany almost positive. I just don’t see how this is a good thing for the markets…but I don’t understand a lot of things. If equities shake it off this morning, look for another nice rally as the day progresses. With GS off yesterday and AAPL weak this morning (i.e. the generals), I think the strength will be capped. Thus, the most likely scenario should the euro stabilize is a tight range not straying far from unchanged…but use the euro as your guide for the session.
Reiterating-
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 specified.
If 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
MF- announced Jon Corzine will be the new CEO effective immediately
ADBE- great earnings
OCNF- inked order for three carriers
USU- Department of Energy to give USU $45 million to fund American Centrifuge technology demonstration and manufacturing activities
GENT- positive Defibrotide results in high risk pediatric patients
SSY- closed near a high
MPG- closed near a high after posting earnings
WLT- closed near a high
CLF- closed near a high; mentioned on “Mad Money” last night
PRGO- closed near a high after announcing acquisition of baby food manufacturer
TIE- closed near a high on takeover rumors
SQNM- closed near a high after being upgraded
SLXP- closed near a high
CCME- closed near a high after posting great earnings
JOYG, BUCY- closed near a high
MEE- reversed in closing near a high after announcing a share offering
AAPL- closed near a high
AMSC- closed near a high after an upgrade
X- closed near a high
BIDU- mentioned positively on “Mad Money” last night
MXL- 6.44 million share IPO at 14, up from expected 5.43 million at 11-13
CALX- priced 6.33 million share IPO at 13 in upper end of expected 11-13 range
LEN- good earnings
NVAX- positive clinical results from first stage of pivotal study of 2009 A/H1N1 VLP Pandemic Influenza vaccine
Bad-The following stocks have bad news and/or a weak technical pattern
DRI- lukewarm earnings
JBL- poor earnings
LIME – poor earnings
KAMN- poor earnings
RXII- registered 2.7 million shares of stock at 6 before the close yesterday; closed near a low
GOOG- mentioned negatively on “Mad Money” last night
LINE- priced 15 million share secondary offering at 25
CMC- poor earnings
Earnings:
WED MAR 24 BEFORE
CMC GIS LEN
WED MAR 24 AFTER
PAYX RHT
Good luck today.
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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