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Wednesday, the market posted its first decent rally in weeks. Wells Fargo, Northern Trust and Charles Schwab posted good numbers and that helped to rally an oversold financial sector. Oil also retreated and that helped to take the sting out of very high PPI/CPI numbers. Comments from Ben Bernanke reassured traders that financial stability, not inflation, was the Fed's priority. The market was able to hold its gains and rally into the bell.
Thursday morning, a lower than expected jobless claims number, a 9.1% jump in housing starts, lower energy prices and solid earnings from J.P. Morgan pushed the market higher. The market held most of the gains and it posted back-to-back rallies.
After the close, MSFT, MER and GOOG are trading lower after reporting earnings. The S&P Futures are down 10 points after hours and we are likely to see a lower open. If the market can recover over the next few days and close above SPY 126, the shorts will get squeezed and we will get a nice bounce.
We may have seen a minor capitulation low this week. The VIX spiked on the IndyMac failure and concerns over Freddie Mac/Fannie Mae. In the chart you can see how these VIX spikes have represented short-term lows.
Next week, the economic numbers shape up like this: LEI, Beige Book, Durable Goods, Michigan Sentiment and New Home Sales. Weak economic conditions are priced in and earnings/guidance (not economic releases) will drive the market.
The major earnings releases next week include Bank of America, Merck, Apple, QLogic, SanDisk, Steel Dynamics,, AK Steel, Caterpillar, DuPont, UPS, UnitedHealth, Broadcom, Norfolk Southern, Yahoo, AT&T, Boeing, General Dynamics, McDonald's, Peabody Energy, Whirlpool, Allstate, Amazon, QUALCOMM, 3M, Wynn Resorts, Black & Decker and Arch Coal. By the end of the week, we will know how the overall earnings season is shaping up. Most importantly, we will be able to gauge guidance for the third quarter.
At this juncture, playing a bounce makes the most sense. I don’t want to get caught short if we do get a snap back rally. This week we will buy calls on two strong healthcare stocks only if a bounce materializes.
NEXT WEEK I WILL PASSIVELY MONITOR THE MARKET AND THERE WILL NOT BE A WEEKLY REPORT. I WILL MONITOR POSITIONS AND SEND UPDATES AS NEEDED.
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