Monday Mop-Up

"12,420 just so happens to be the mark we hit Friday morning and a 20% retrace from there (coming off 11,700) so that was up 700 and we need to stay above THAT 20% retrace which would be 140 off the 12,420 or 12,280 so that should be our upside resistance that hopefully becomes a floor today if we are going to call it progress." – Me at 12:39

As I often say to members, I don’t control the markets, I just tell you what they’re going to do…

In the morning post, I said: "Europe had a nasty open but the DAX is recovering, but still pathetic at 6,748 and we need that 6,800 line by the close in order to not have to throw in the towel on technicals" and the DAX was kind enough to close right at 6,809 which gave us a great signal for the afternoon. As I predicted, the Dow broke over 12,280, tested it on the downside a couple of times, and finally broke through, on the way to a morning retest of 12,420, where we’re going to need a little commitment early on or we’ll probably flatline into the Fed.

We weathered some nasty home sales numbers in the morning that sent the market to the day’s low of 12,115 but that was higher than last Monday’s high so we were felling pretty good as we added some calls in our extended bottom fishing expedition. At 10:09, at the exact lowest minute of the day, I said to members: "I am still stopping out callers when I am ahead 50% or more and I lose 20% of my profits. The logic is, at that point, I am better off rolling down to the next caller if it drops lower anyway and, if it bounces back to where I started and falls again, then I get to double dip on the same caller. XXX" As the Dow gained 270 points from that spot, I’d have to give myself a pat on the back for that one!

The market was already on the way up when we got good manufacturing numbers at 10:30 so that gave us some nice topspin and we held our magic levels for the rest of the day. I’m still generally cautious as there is an 88% chance of a .50 cut already priced into the market, that is up from 70% on Friday so it will be hard for the Fed to deliver anything but "in-line" results on Wednesday.

The Nasdaq underperformed today and financials led us, up 3.3% as a group but every other sector was up 1% or more so it was a nice, broad-based rally. After hours we got an in-line report from AXP, who we just added to the $25KP, and they took a 3% hit in the early reaction but I’ll be happy to take out our callers and roll these down, as I think the company is in good shape long-term.

SNDK had a strong beat in earnings, a slight miss in revenues but gave cautious guidance and was punished for it. VMW BEAT expectations but not by enough to justify a p/e of 166 in this market and the stock dropped 24% in after hours trading! Let that be a cautionary tale to you momentum players as we move through earnings season….

We’re sure to test 12,420 in the morning but, ahead of the Fed, I’m not expecting much and it will be good to have a quiet day so we can do a little hedging, just in case Bernanke gets the same treatment VMware got!