Thursday, February 26, 2009

UK Unveils Plan To Insure Banks

The market is getting a nice bounce this morning, although you know I generally prefer a market that opens weak and closes strong. A strong market open like this too often runs the risk of fading by the closing bell. Let's hope I'm wrong this time.

Yesterday's session was not that bad. Consider that the previous day the S&P rallied a strong +4% on heavy volume. 90% of the volume was "up" volume (stocks rising). Yesterday's 1% pullback on lower volume looks like it was just consolidating the previous day's rally.

Europe is also up on the news that the UK government will insure assets at banks to help protect against future losses. The FT said the plan is expected to cover as much as 600 billion British pounds of assets.

In economic news, new home sales for January were down -10.2% for the month. And January durable goods orders fell -5.2%. But we know January was weak. The question for the market is will we see signs of improvement later this year? And if so, the market will surely begin to move higher in advance of this.

In corporate news, IBM reaffirmed its earnings guidance for 2009, which is helping the stock bounce +4%. Flour (FLR) and American Tower (AMT) both reported better than expected earnings, and their stocks are higher as well.

The financials (banks) are leading the way today, with the bank index surging +9.6%. Health insurers are leading on the downside, suffering big drops on the news that Obamas budget plan will cut HMO payments, etc.

Trading comment: The SPX is still trying to lift above recent resistance. I took profits on some of our etf hedges around SPX 750, and will likely look to put some of those positions back on near SPX 800 (if and when).

We are only in day 3 of our short bond etf (TBT), but that position is already +6% in our favor. Aside from that, what makes this market more difficult than the obvious is that there are no real leadership groups. That means we need to be more active in trading the indexes, using hedges, and broadening our asset class exposure to include bonds, gold, commodities, etc.

long GLD, TBT


At 1:13 AM, Blogger Celal Birader said...

If the inverse relationship between the USD and Gold holds (it had broken down recently as both were going up probably due to unprecendented weakness in the Yen powering the rise in the DXY) then i expect GLD could go down to around 87 which is the 50DSMA. What do you think ?

At 12:10 PM, Blogger J. Kahn said...

it could go to 87, but it's not just the dollar/gold relationship. every central bank is trying to weaken their currency (bolster exports), which makes gold a de facto alternative currency. I think it still goes higher--


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