A 200-point round trip by lunch followed by a 200 point rise after lunch. We’re getting so used to these crazy days that we hardly seem surprised any more. The huge intra-day spike shown in the chart below was due to Standard & Poor’s affirming its ratings for Ambac Financial Group and MBIA.
The news came just in time for the bulls. In last Thursday’s blog we mentioned that many had called for a bearish breakdown of the pennant formation that day, but only a close below would signal to us a resumption of the bearish trend. That looked highly likely for most of Friday until Charlie Gasparino noted on CNBC that Ambac and MBIA might be saved after all. That suspicion and Standard & Poor’s affirmation today catalyzed a rally of almost 500 points in just two trading sessions!
As if that wasn’t enough, the market managed to tease us with its close today. The pennants were broken to the upside but the key 12,600 level remained firm on the Dow and the 1,380 level was not tested on the S&P 500. Incredibly, in the space of just two trading days we must now be on the lookout for a bullish reversal rather than a resumption of the bearish trend.
We maintain that it will be very hard for the major indexes to stage a strong bullish rally if technology leaders fail to participate. And today Google acted like a dog on a leash that refused to budge despite intense coaxing and tugs by the general market. It was a dismal day for Google, down a huge 4.21% or 21 points. You can see from the chart below that the volume in the last fifteen minutes was astonishingly high. A quick glance indicates that almost $250M worth of stock was sold in those final minutes.
We’re not buying the rally just yet. In fact, we are highly skeptical until bullish breakouts are confirmed. Tomorrow morning we will see the release of the PPI and Core PPI at 8.30AM EST. We will learn how confident the consumer is at 10AM. Durable Orders will be reported on Wednesday along with New Home Sales and the all-important Initial Claims will be out on Thursday. Friday will bring information on Personal Spending and Personal Income. So, there are no shortage of news events that can turn this market right back around again.
CSX performed well for us today. In fact, it offered an excellent chance to take advantage of our latest trade with a dip in the morning followed by a big upmove. We’re playing it safe however and will keep a very close eye on the stock. For more on our thesis behind why the stock has performed well thus far and is likely to remain strong relative to the market performance, please feel free to read our latest Trade Alert.
Another stock that, for the most part, has bucked the general market trend has been Potash. POT had another outstanding day today, up $7.28 or 4.64%. Some might attempt to trade bearish on a stock like this but be very wary of such trades. Sentiment can often drive a stock much higher than you might deem possible and in a shaky market, strong stocks are magnets to investors so tread cautiously.
We wish you a wonderful week!
