The markets started out down dramatically yesterday on the heels of two major stories. First, in the fashion by which Washington Mutual was suddenly sucked into JP Morgan (JPM) ostensibly overnight on a seemingly random Thursday night, a number of regional banks in Spain were vacuumed into larger (hopefully more) healthier banks. The IMF ostensibly told the Spanish governmental financial authorities to shore up their books pronto so the gentle nudging sparked the consolidation. This sparked all sorts of awful memories of a bad time in international finance ala 2008 and early 2009 which caused massive selling of the euro (and the European stock markets). Yet, the first story occurred hours before that. North Korea announced it was going to cut all ties with South Korea and made bellicose statements about military provocation due to alleged violations off of its waters off of its west coast. This was done of course after the South blamed the north on a recent torpedo. Now, it doesn’t make much sense for North Korea to have taken these steps due to its poor economic state, but many things from the Pyongyang approach are habitually odd. So before Spanish Bank Crisis, there was Korea War Crisis. What turned things around? Well, as it appeared yesterday that Security Council action is not going to be swift, that took some of the palpable nervousness away. Why? If the United Nations is not responding immediately to this, perhaps the talk is just that- talk. The other factor was that Representative Barney Frank indicated that Congress may well pass a much milder version of the financial overhaul bill that is on the table. With that came a rally in the likes of such stocks as beaten-down Goldman Sachs (GS)…and suddenly the makings of the turnaround were set. Uncertainty over European debt problems will continue to weigh on things, but for an afternoon at least, the market sighed a happy sigh that nuclear war is not immediately at hand on the Korean Peninsula. And maybe, just maybe, the push for ‘financial reform’ will be lightened a bit following a 10% plus decline in the Dow Jones Industrial Average in the last few weeks.
Markets rebounded worldwide overnight with Tokyo up 0.7%, Hong Kong 1.1%, London 1.6%, and Frankfurt 1.9%. Commodities bounced as well with gold up 0.5% and oil ahead 3%. The euro is giving back some of yesterday’s bounce, but that is the only cloud in the sky this morning. Look for a gap higher open as a number of entities are caught short in the immediate-run as the worst did not happen. Following that, I’d be looking for A-B-A2 set-ups to the upside as the scared shorts will outweigh a few lucky longs. The market should hold its strength as there is no immediate-term trigger to shove it down thus there will likely be a very placid mid-section of the day with it 90 degrees and sunny outside. Movement will occur again in likelihood in the last 1- 1 ½ hours based on how well (or poorly) the euro is holding.
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
NZ- good earnings
VRTX- positive late-stage data of its Telaprevir
PNC- closed near a high
GS- closed near a high
WYNN- closed near a high
AMZN- closed near a high
X- closed near a high
JOYG, BUCY- closed near a high
FCX- closed near a high
IOC- closed near a high
RIG- closed near a high
AIG- closed near a high
AZO- closed near a high after posting good earnings
CLF- closed near a high
GOOG- closed near a high
POT- closed near a high
FSLR- closed near a high
MHS- decent earnings guidance
SOLF- great earnings
TOL- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
GTXI- poor phase III results for Toremifene
TIVO- poor earnings
UIL- closed near a low after announcing acquisition of several gas utilities which would be dilutive to earnings next year
NNA- closed near a low
AEO- poor earnings
Earnings:
WED MAY 26 BEFORE
AEO DSX SOLF
TOL VIP ZLC
WED MAY 26 AFTER
DBRN NTAP PAY
SIGM SMTC TTWO
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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