Interesting Links

What a week for the bulls! Talk about a strong week. Right from the start on Monday morning, the market was bid up. It seems that all news is good news at this point, and above the resistance at 88, it looks like mutual funds have started buying into the move they missed off the lows, after the dismal year that was 2008. On Thursday we saw our first sign of weakness, but the release of the stress test results caused another spike up in the market on Friday. We closed right by the week’s highs, so we’ll have to see what happens at the 93 level this upcoming week. Above there I would be looking for the SPY to have a little bit of trouble at the 94.50 level.

So let’s take a look at a few important articles from the week:

An interesting chart of the Dow priced in relation to gold. When you look at this chart, you see that priced in terms of gold, we’ve been in a bear market for the last 10 years.

Some speculation on the possibility of the dollar collapsing as the Chinese begin to move away from it. As I’ve said before in this section, this is a long term fundamental shift to keep an eye on.

A lot of chatter going around about the vanishing consumer credit. People with almost perfect credit scores are being denied credit. For a market that has rallied sharply on the GDP number which showed that consumer spending looks to be showing signs of life, this isn’t exactly what you’re looking for.

A really good analysis on NYSE high-low volume off the lows compared to the 2003 bear market end. Something is odd when the high-lows have basically flatlined since the March lows. Furthermore, correlation is still running high in the markets.

All traders are always seeking to improve. But we’re not always asking ourselves the right questions to get to that next level. Dr. Steenbarger has helped re-shape some problem focused questions into solution focused questions.

A very interesting week. The SPY continues to linger around just below the 88 level, consolidating near the highs. Tuesday’s action after the Fed announcement increased volatility, although we haven’t really gone anywhere. Wednesday morning, it looked like the bulls were regaining control of the tape, but were not able to close the week above the critical 88 level. One thing I’ve noticed in the price action this week: Although the SPY looks like it’s getting ready to possibly make another up-leg, the financial sector as a whole has not participated in these new recent highs. Don’t get me wrong, not all financials are lagging. Both GS and MS have been extremely strong, but as a whole, the sector is lagging and looks like it is stalling. This makes me very cautious about being long at these levels.

That being said, let’s take a look at some interesting things from the past week:

The rising wedge pattern is still intact on the S&P futures. This is important to realize, because although it looks like the index is breaking out, a closer look tells us this could be a topping pattern where we can expect a pullback of some sort.

This earnings season has continued to top analysts estimates. With over 75% of companies having reported now, this earnings season is proving to be one of the best in a while, even if it is on significantly lowered expectations.

A little update on some troubled asset sales. The 33% discount is much lower than what banks are listing assets on their books as. So, as expected, the suspension of mark-to-market accounting is really helping out the banks. The question remains: will these assets ever recover?

As because de-lever, the Fed has been levering up. Those assets have to go somewhere.

Citi may need to raise $10 billion. Stress test results are expected to be out on Thursday, after the market close. There have been rumors that the reason for the delay in the release of the results is because the banks are contesting the regulator’s numbers. Given the assumptions made under the most stressful scenarios, I think they have been shown alot of mercy. But this is the classic case of giving someone an inch, and them trying to take a mile. Some more insight into the stress tests courtesy of Naked Capitalism.

Another $400 billion in bank losses on the way. It will be interesting to watch how this unfolds, but more importantly how the market reacts to news in the financial sector. Over the last 3 weeks especially, the market has responded very well to capital raises, sending equity prices higher.

Here’s an analysis of program trading on the NYSE lately. GS has increased program trading significantly over the past few weeks. Zerohedge has discussed this in detail, with Goldman finally responding this past week. Some interesting points are raised. This is something I have become increasingly interested in and thought others would be curious to know about.

A very interesting analysis from the NY Times on genius. What has often been attributed as genius in the past was actually thousands of hours or practice and hard work. To touch on what Bella wrote about this past week, you must be committed to working long and hard if you wish to be the best, not just in trading, but in anything you do.

Well what looked like was going to be a week for the bears ended up being a pretty good week for he bulls.  Let’s keep an eye on that 88 level in the SPY, as it looks like it’s going to come into play again this upcoming week.

The dollar index looks like it is breaking down from a bear flag.  This is definitely something to keep an eye on, as a weaker dollar will lead to strength in commodities, particularly precious metals.

More than half of the companies that have reported Q1 earnings have beat estimates.  After what started off looking like a dismal earnings season, may turn out to be not that bad after all.  We’ll have to see if this trend holds up.

A comparison of rallies off bear market lows.  These two charts show where this most recent rally falls in terms of volume and percentage gains.

Gold is acting well.  After looking like it was going to trade back down to 800 for a day or two, gold has rallied and finished the week above 900.

Over at Naked Capitalism, Yves thinks the stress tests may be a charade.  Insiders are selling into this rally at very high levels.  A really interesting article, definitely worth the read.

Rumors are circulating that the SPY is becoming hard to borrow.  Very interesting indeed.

From the people who brought you FAZ and FAS, Direxion, has launched triple T-bond ETF’s.  It’s currently very thinly traded, but so were FAZ/FAS when they first started.  I think these will become increasing more liquid, and will provide equity traders with an opportunity to trade bonds for volatility swings on the release of economic numbers and Fed meetings.  Definitely keep an eye on these.

The SPY has formed a 3 push wedge, with a negative MACD divergence,  and could be presenting trader’s with a good risk/reward entry for a short.  88 was also a level where the SPY failed twice earlier this year.

A little humor.  I’ve seen some some pretty good stuff from Dilbert lately.  Here’s a few more. 

 Checking in on the 4 bad bear markets.  This is the second worst bear market of the past 100 years. 

An interesting article from the Journal talks about the possible effects leveraged ETF’s may have on the final 30 minutes of the trading day.  Definitely worth a read.

According to  Bespoke, stocks with the highest short interest have been the leaders in this rally.  Could this just be a short covering rally?  We’re not sure yet.  But they also note that market bottoms have started in similar fashion in the past. 

There’s a lot of skepticism on the bank earnings from the last week.  If one digs into Citi’s numbers, they see that the company actually lost money.   Goldman did some accounting acrobatics in order to report stellar numbers.  There’s also been some questioning on Wells Fargo’s loss reserves.  All in all, banks beat lowered estimates, but after Goldman’s earnings this past week, things felt like they changed, even if it was just a little.

China has made yet another move towards moving away from the US dollar.  This is something to keep an eye on in the future, as China is the biggest holder of US currency, and a change in their policy would have major effects on US monetary policy.  This will take some time to play out, but it would be prudent to not ignore this.