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Trade the Markets 7-13-2009

admin on 07 13, 2009

Asian markets were experiencing a selloff of significance and European markets were following closely behind as were U.S. futures when high-profile financials analyst Meredith Whitney announced a buy recommendation on Goldman Sachs in front of their earnings release this week. This and other relatively positive comments about the 2^nd quarter results for financials immediately began to have a positive effect on the European indices and the futures which resulted in a positive opening vs. Friday’s close.

In a way Whitney’s comments may have pre-empted what would and yet may still be positive surprises from the financials that report this way and thus this could actually result in a nasty handling of those stocks as the week progress because the story is already out and on its way to being discounted. Obviously this remains to be seen but the week just got even more interesting and thus potentially volatile than it had already been.  Friday will be a big day as not only is it expiration day, but there are several financials reporting on that day which could result in high impact in terms of movement.  The Philly FED survey will be released on Thursday as well thus the second half of the week really could produce increased volatility, although there are several economic releases and earnings reports that are sprinkled in nearly every day.

So where are we really then?  We’re not out of the proverbial woods technically yet but in reality they’ve held the market up fairly well to this point and have made it to big earnings from the financials. The sector where modern cheating can best be categorized as avant garde finance.  We all know the history but here it is in a “nutshell”: They took on too much risk and made a fortune doing it.  The taxpayers have been sold out by their representatives and were forced to bail the financials out.   The surviving tax-payer bolstered firms are now rewriting the laws alongside our representatives and since that process started the firms have been able to gouge the taxpayer more efficiently to get healthy again. The best part is that this is celebrated as a big victory for the government, the fed and the economy and the mainstream media quickly rolls on celebrating green shoots that only they and politicians can see.  So this week expect to see an even easier time for the carnival barkers.  They’ll take cover behind the Sotomayor hearings this week and they’ll do it timing-wise near midsummer.  Whatever rigging worked in the second quarter won’t be too carefully scrutinized because of those and other reasons.  This is the same play that allowed the Cap & Trade nonsense to pass in the House while the media stayed front and center on the assorted deaths of several celebrities.  This happens with regularity but let’s just chalk it up to coincidence and opt to continue to rely on the regulators and our advocates in the free press to gloss over things.

With Whitney’s comments on GS, BAC and others this morning this week is now really up in the air as we see it.  Her comments could be used by the players to buoy the market only to sell into it now and yet if the earnings from the financials and comments are even more positive than are now expected that could produce another round of fireworks too.  In short we’re just expecting good intraday action with a lot of uncertainty at the moment.

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The Technical Picture:

In an attempt to keep the chart clean and simple we’ve removed several indicators that we normally chart.  At present the 200 SMA and the 20 SMA are still sloped negatively and in addition to the SPYs currently being under both, the 20 SMA is threatening to break below the 200 SMA so as we said last week, the support must hold or there could be very serious downside acceleration.  That’s why we expect our friends that move markets to make the most they possibly can of this earnings rich expiration week here.  As we note, the A/D Line is still clinging to support as is price which is just above the key neckline level that we note with our rectangles.  The pattern has changed and in shape is mirroring itself from where it was about 2 months ago.  Stay Alert!