May 2009

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.