Whenever I am highly uncertain of something, my stomach is in a knot. It is just a very unpleasant feeling. When I get the news- good or bad, I at least am somewhat settled before tackling the issue- again, good or bad- because I now know what it is I need to deal with. Usually, the higher the likelihood of a negative income, the worse I feel leading up to the news and the less of a shock it is once the news comes out. Such was the case on Friday with the markets which was a major reason I called for a bounce shortly after the open. First, on Thursday night, the U.S. Senate by a 59-39 vote approved a comprehensive regulatory bill the likes of which has not been passed since the Great Depression. The bill includes restrictions on proprietary trading by banks and also creates an oversight agency with the sole intent of (attempting to) prevent abuses by lenders. Furthermore, there is a means which would eliminate the unwritten ‘too big to fail’ provision that has prevailed for many years in the United States. The other major issue that was resolved on Friday was the fact that both houses of the German Parliament approved the loan to Greece that had already been decided upon by the EU. There was certainly an element of ‘what-if’ there. Finally, notably, the euro rallied very sharply starting in the middle of last week. This was actually slightly negative as the velocity of the move was quite sharp because so many funds were short, they had to cover the short in euro and to raise money, the impetus was to sell other assets such as- you guess it, equities. Well, while nobody knows the exact details of the financial reform bill, the markets didn’t like it…but it passed. Nobody was totally sure Germany would approve the Greek loans nor is anybody certain that’s the best thing for Germany…but it happened. Finally, nobody was totally certain what the hedge fund risk was on an options expiration Friday with the euro rallying…but near-term S&P futures expired on the open and there was no announcement of a hedge fund blow-up. Thus, much immediate-term uncertainty was taken off the table. We got a negative outcome for the markets with the bill, a finalization of the approval in Germany, and the purging forced selling by funds was done on the opening bell (it’d seem). With the immediate-term uncertainty removed despite a negative outcome in particular re the legislation and the hedge fund selling, the stage was set for things to perk up a bit at least in the next few hours from early Friday morning to mid-afternoon on Friday. Totally on point: never forget history, but don’t let it influence future judgment of trades. Despite all the negatives, the worst was over in the immediate-run with everything out there. So, the ‘relief’ that some major obstacles were over and could now be dealt with helped spur the early Friday move for equities.
Markets were mixed in Asia overnight. Tokyo was down 0.3%, Hong Kong up 0.6% and China up very sharply (over 3%) on hopes that some of the credit tightening would be halted in light of recent worries over worldwide (much less domestic) growth expansion. European markets, however, are down across the board from slightly in London (0.2) to over 1% in Frankfurt. The euro is getting hit very hard after no major developments occurred In Europe over the weekend. Oil is quiet, gold up slightly, and bonds up a bit. Futures are sharply lower albeit off of their morning lows as of this writing. Individual big-caps are notably mixed with materials and most financials lower but many big cap tech stocks a bit higher. The slight giveback is not surprising given the rapid ascent in the last few minutes of trading on Friday and the euro hit. There will definitely be a tug-of-war this morning; the declining euro and the sharp advance late Friday versus positive tidings out of tech early on will set the stage for the day. Look for a quieter day than Friday with moves not quite as sharp. There will likely be an attempt to shoot for unchanged from the down open, but the force of the decline of the euro and the early strength of the techs will truly set the battle ground for the day.
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
HAR- closed near a high
WYNN- closed near a high
BIDU- closed near a high
IBM- closed near a high
JOYG- closed near a high
PNC- closed near a high
JPM- closed near a high
CTSH- closed near a high
PXD- closed near a high
FTI- closed near a high
ATI- closed near a high
KFN- mentioned on “Mad Money” on Friday night
Bad-The following stocks have bad news and/or a weak technical pattern
BP- indicated sharply lower after oil slick situation in the Gulf worsened over weekend
Earnings:
MON MAY 24 BEFORE
CPB LFT YGE
MON MAY 24 AFTER
DCI PVH
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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